Relaunch Of Nutrish And Cost Efficiencies To Strengthen Future Performance

Key Takeaways

• Post Holdings' innovation focus and product relaunches in its pet segment aim to drive revenue, while margin improvements are targeted through ERP conversions and plant performance.
  
• Strategic M&A opportunities and share repurchases during macroeconomic uncertainty could enhance earnings per share by boosting revenue and optimizing capital allocation.
  
• Post Holdings may face revenue and margin pressures due to avian influenza, declining pet product volumes, and macroeconomic uncertainties impacting consumer behavior and key segments.

Catalysts

Operates as a consumer packaged goods holding company in the United States and internationally.

• Post Holdings is focusing on innovation in its pet segment, with plans to relaunch the Nutrish brand and introduce new products in Nature's Recipe and Kibbles 'n Bits, potentially driving revenue growth.
  
• The company is looking to capitalize on cost savings and margin improvement through ERP conversions at PCB Pet and Weetabix and ongoing plant performance improvements, which could enhance net margins.
  
• Post plans to continue its growth in Foodservice by leveraging value-added products like eggs and potatoes, potentially increasing revenue and stabilizing earnings despite potential avian influenza-related costs.
  
• With a focus on capitalizing on macroeconomic uncertainty, Post's active pursuit of potential M&A opportunities and strategic share repurchases could boost earnings per share (EPS) by enhancing revenue streams and optimizing capital allocation.
  
• Post is leveraging cost-saving measures and potential price recovery efforts due to avian influenza impacts in the egg market, projecting a recovery in Q2 costs in the latter half of fiscal 2025, impacting net margins positively.

Post Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Post Holdings's revenue will decrease by 1.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 5.8% in 3 years time.
• Analysts expect earnings to reach $477.4 million (and earnings per share of $7.84) by about April 2028, up from $391.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, down from 16.1x today. This future PE is lower than the current PE for the US Food industry at 16.4x.
• Analysts expect the number of shares outstanding to decline by 6.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.37%, as per the Simply Wall St company report.

Post Holdings Future Earnings Per Share Growth

Risks

• Post Holdings is facing potential cost challenges due to avian influenza affecting egg supply, which could impact their earnings if supply chain issues are not resolved as expected.
  
• The company has reported a decline in pet product volumes, specifically a 13% decrease, attributed in part to strategic decisions to exit low-margin items, which could negatively affect revenues if not offset by increases in higher-margin product sales.
  
• There are macroeconomic uncertainties, including potential changes in trade tariffs and pressure on consumer spending, that could impact overall revenues and net margins if consumer purchasing behavior changes unfavorably.
  
• Volume declines in key segments, such as a 9% decrease in Post Consumer Brands excluding acquisitions, indicate potential challenges in maintaining market share and revenue growth, particularly if cereal category declines persist.
  
• Despite executing ERP conversions successfully, profit-enhancing actions and cost management efforts might not fully mitigate lower volumes across several segments, potentially affecting net margins and earnings.

Valuation

• The analysts have a consensus price target of $128.9 for Post Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $144.0, and the most bearish reporting a price target of just $105.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.2 billion, earnings will come to $477.4 million, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 6.4%.
• Given the current share price of $111.91, the analyst price target of $128.9 is 13.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.