Global Demand For Natur-Tec And Operational Changes Expected To Drive Future Opportunities

Key Takeaways

• Strong growth in Zerust Oil & Gas and ongoing global demand for Natur-Tec are expected to enhance future revenue and profitability.
  
• Infrastructure investments and operational efficiencies through facility consolidation and in-sourcing aim to improve margins and profitability.
  
• Declines in joint venture sales and higher operating expenses may impact revenue, profitability, and earnings, with risks from economic pressures and regional dependencies.

Catalysts

Develops and markets rust and corrosion inhibiting solutions in North America, South America, Europe, the Middle East, China, Brazil, India, Rest of Asia, and internationally.

• NTIC is experiencing strong demand and significant growth in the Zerust Oil & Gas sector, with expectations for this trend to continue, enhancing future revenue and profitability.
  
• Strategic investments in infrastructure, such as the expansion in India and Brazil, are poised to support growth in Natur-Tec sales and enhance profitability through increased efficiency and capacity.
  
• The consolidation of facilities and in-sourcing of manufacturing processes, particularly in the U.S., are likely to improve gross margins by reducing costs and enhancing operational efficiency.
  
• Ongoing global demand for compostable products in the Natur-Tec segment is driven by new customer wins and expanding relationships, suggesting continued revenue growth and potential margin improvements.
  
• The continued stabilization and potential demand recovery in the European and Chinese markets are expected to contribute positively to incremental sales and profitability in fiscal 2025.

Northern Technologies International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Northern Technologies International's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 9.9% in 3 years time.
• Analysts expect earnings to reach $10.8 million (and earnings per share of $1.05) by about January 2028, up from $5.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, down from 22.7x today. This future PE is greater than the current PE for the US Chemicals industry at 19.3x.
• Analysts expect the number of shares outstanding to grow by 2.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.58%, as per the Simply Wall St company report.

Northern Technologies International Future Earnings Per Share Growth

Risks

• Declines in joint venture sales, particularly in Europe due to softer demand and economic pressures, could impact overall revenue and profitability if these conditions persist.
  
• The significant decrease in operating income from joint ventures, as shown by the 51.4% drop, highlights risks to earnings stability, which could affect long-term financial performance if not addressed.
  
• Higher operating expenses, driven by increased personnel costs and other inflationary pressures, could negatively affect net margins and earnings if these costs continue to rise faster than sales.
  
• There is potential volatility and seasonal fluctuations in Zerust Oil & Gas sales, which may lead to unpredictable revenue patterns that could impact overall financial projections.
  
• The reliance on future demand improvements in regions like China and Europe presents a risk, as economic or geopolitical uncertainties in these areas could adversely affect sales growth and profitability.

Valuation

• The analysts have a consensus price target of $20.0 for Northern Technologies International based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $108.2 million, earnings will come to $10.8 million, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 6.6%.
• Given the current share price of $12.95, the analyst's price target of $20.0 is 35.2% 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.