Restructuring And Global Initiatives Will Strengthen Future Performance

Key Takeaways

• Restructuring and non-core divestitures are set to enhance profitability and drive growth through strategic transformation initiatives.
  
• Expansion in Personal Care and global innovation in injectables and film coatings indicate strong potential for future revenue growth.
  
• Ashland faces pressures from soft European demand, Chinese overcapacity, and competition, alongside the need to offset restructuring impacts and manage dynamic global risks.

Catalysts

Provides additives and specialty ingredients in the North and Latin America, Europe, Asia Pacific, and internationally.

• The company's focus on self-help initiatives, such as restructuring and manufacturing optimization, is expected to offset the impact of portfolio optimization actions and improve overall performance, positively impacting EBITDA and net margins.
  
• The divestiture of non-core businesses like Avoca and the completion of a $30 million restructuring program aim to finalize Ashland's strategic transformation, which is expected to enhance profitability and drive future revenue growth.
  
• Personal Care's continued strong demand and growth in Hair Care and Skin Care, supplemented by new production capacity in regions like Asia, indicate potential for further EBITDA expansion and revenue growth.
  
• Global expansion and innovation efforts, particularly in injectables and OSD film coatings, with multiple product launches planned, are expected to contribute to future sales growth and enhance long-term revenue.
  
• Anticipated $90 million in cost savings from restructuring and manufacturing optimization initiatives aims to drive substantial value creation and improve operational efficiency, directly impacting EBITDA and net margins positively.

Ashland Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ashland's revenue will decrease by 0.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 15.1% in 3 years time.
• Analysts expect earnings to reach $307.7 million (and earnings per share of $4.64) by about March 2028, up from $5.0 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 13.2x on those 2028 earnings, down from 541.3x today. This future PE is lower than the current PE for the US Chemicals industry at 22.1x.
• Analysts expect the number of shares outstanding to decline by 5.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

Ashland Future Earnings Per Share Growth

Risks

• Ashland is experiencing soft demand in Europe and overcapacity in China, which could continue to apply competitive pressure and affect pricing, impacting revenue.
  
• The company faces significant EBITDA impacts due to divestitures and restructuring efforts, creating pressure to offset lost gross profit and stranded costs, which could influence net margins.
  
• The dynamic global landscape, including potential trade policy changes and fluctuating currency exchange rates, poses risks that could affect revenue and earnings forecasts.
  
• There is a threat of increasing competition, particularly from Chinese exports, which might influence pricing strategies and market share, impacting overall earnings.
  
• Initiatives for growth through globalization and innovation may take time to yield results, creating short-term financial pressures, potentially impacting net margins and revenue growth.

Valuation

• The analysts have a consensus price target of $82.889 for Ashland 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 $93.0, and the most bearish reporting a price target of just $68.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $307.7 million, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $57.36, the analyst price target of $82.89 is 30.8% 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.