Revitalizing Growth Through Tactical CRM And Aerospace Expansion Will Positively Shape Future Earnings

Key Takeaways

• TriMas's investment in CRM applications and commercial model reorganization is likely to significantly boost future revenue growth.
  
• The company's strategic mix of share repurchases, divestitures, and acquisitions is designed to enhance long-term growth in revenue and margins.
  
• Diverse risks across segments, including reliance on Specialty Products and operational challenges, could significantly impact revenue, earnings, and growth if not managed.

Catalysts

Engages in the design, development, manufacture, and sale of products for consumer products, aerospace, and industrial markets worldwide.

• TriMas Packaging's strategy of investing in new customer relationship management applications and reorganizing its commercial model using an 80-20 approach appears to be contributing to strong core growth rates, likely impacting future revenue growth positively.
  
• The positive momentum in TriMas Aerospace, with the expectation to exit 2024 at a conversion rate nearing pre-COVID levels and at approximately 50% higher rate of sales, indicates significant potential for revenue and earnings growth.
  
• The company's focus on share repurchases, as evidenced by the repurchase of approximately 672,000 shares, reducing shares outstanding by about 1.3%, is expected to contribute to EPS growth.
  
• Strategic actions within the Specialty Products segment, including cost reduction efforts and operational improvements, despite the current low base of sales, suggest the potential for margin improvement and impact on net margins in the future.
  
• Planned divestitures and strategic acquisitions focused on building out the TriMas Packaging and Aerospace platforms indicate a strategy for long-term growth that could positively impact revenue and margins.

Assumptions

• Analysts are assuming TriMas's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 14.7% in 3 years time.
• Analysts expect earnings to reach $151.1 million (and earnings per share of $3.68) by about October 2027, up from $40.5 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 11.1x on those 2027 earnings, down from 25.3x today. This future PE is lower than the current PE for the US Packaging industry at 26.2x.
• Analysts expect the number of shares outstanding to grow by 0.37% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.35%, as per the Simply Wall St company report.

Risks

• The heavy reliance on the Specialty Products segment, notably the Norris Cylinder business, reflects a significant risk, particularly if the expected demand recovery does not materialize, impacting revenue and net margins.
  
• Execution risks associated with the aerospace segment's recovery to pre-COVID levels could impact earnings if anticipated improvements in supply chain continuity and manufacturing capacity do not occur as planned.
  
• The company’s plan to invest in and reorganize its commercial model, including adopting an 80-20 approach in its Packaging segment, introduces risks if these internal changes do not yield the expected strong core growth rates, potentially affecting revenue.
  
• The Specialty Products segment’s forecasted sales decline due to overstocking and lowered demand, especially in the industrial cylinders and compressors markets, poses a direct risk to revenue and profitability.
  
• Operational challenges, such as capacity bottlenecks in the Packaging segment, could limit the ability to meet increasing demand, impacting revenue growth and operational efficiency, which in turn could affect earnings and net margins.

Valuation

• The analysts have a consensus price target of $34.12 for TriMas 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 $40.0, and the most bearish reporting a price target of just $28.23.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.0 billion, earnings will come to $151.1 million, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 6.4%.
• Given the current share price of $25.21, the analyst's price target of $34.12 is 26.1% 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.