Silicon Innovations Propel Expansion In Solar Energy And Electric Vehicles Markets

Key Takeaways

• Imposition of anti-dumping duties is enhancing Ferroglobe's U.S. market share and revenue by reducing import competition.
  
• Silicon metal capacity expansion targets rising demand, boosting future revenue and cost-efficiencies with technological upgrades.
  
• Softening demand and pricing pressure revenues and margins, while forecasts for global steel and aluminum recovery add uncertainty to short-term revenue growth.

Catalysts

Produces and sells silicon metal, and silicon and manganese-based ferroalloys in the United States, Europe, and internationally.

• The imposition of robust anti-dumping duties on ferrosilicon imports from several countries is expected to enhance Ferroglobe's competitive position and increase its market share in the U.S. These measures should lead to increased revenue as local production gains traction due to reduced competition from low-priced imports.
  
• The planned expansion of silicon metal capacity in the U.S. is aimed at capturing rising demand driven by sectors like solar energy and electric vehicles. This expansion is expected to bolster future revenue and earnings through increased production capabilities and cost-efficiencies from technologically advanced furnaces.
  
• The implementation of a new sales and operations planning (S&OP) process aims to optimize raw material purchases, production, logistics, and sales. This process is expected to lower costs, reduce working capital needs, and improve net margins through increased operational efficiencies.
  
• Improvements in end markets such as steel and aluminum, coupled with expected interest rate cuts, are anticipated to drive demand for Ferroglobe's products in the second half of 2025. This rebound is expected to positively impact revenue and earnings.
  
• The agreement to supply silicon metal to a large Middle Eastern customer for renewable energy projects highlights a potential new revenue stream and aligns with expanding into high-growth markets, which should support revenue growth.

Ferroglobe Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ferroglobe's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 9.0% in 3 years time.
• Analysts expect earnings to reach $174.9 million (and earnings per share of $0.91) by about November 2027, up from $40.6 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 12.6x on those 2027 earnings, down from 19.0x today. This future PE is lower than the current PE for the US Metals and Mining industry at 19.0x.
• Analysts expect the number of shares outstanding to grow by 0.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.76%, as per the Simply Wall St company report.

Ferroglobe Future Earnings Per Share Growth

Risks

• End market demand remains muted and pricing continues to soften, which could pressure revenues and margins in the short term.
  
• The global steel and aluminum demand is forecasted to rebound only in the second half of 2025, creating uncertainty around near-term revenue growth.
  
• The silicon-based alloys segment experienced a significant decline in adjusted EBITDA due to lower fixed cost absorption, which could impact net margins and earnings negatively.
  
• While anti-dumping duties in the U.S. are expected to benefit the company, the reliance on trade protection measures introduces risks if duty levels change or if market dynamics shift, potentially affecting future revenues.
  
• There is uncertainty in the volume and pricing of new contracts in the U.S. ferrosilicon market until final duties decisions are made by authorities, which could impact revenue forecasts and earnings expectations.

Valuation

• The analysts have a consensus price target of $9.0 for Ferroglobe 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 $11.0, and the most bearish reporting a price target of just $7.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.9 billion, earnings will come to $174.9 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $4.1, the analyst's price target of $9.0 is 54.4% 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.