Plant Turnarounds At Cherokee And Pryor Will Boost Production Volumes In 2025

Key Takeaways

• Strategic focus on higher-margin products like UAN aims to boost net margins and profitability, enhancing overall earnings potential.
  
• Operational improvements and energy transition projects are set to drive cost optimization and incremental EBITDA growth, potentially increasing net margins.
  
• Delays in EPA approval and natural gas price volatility may impact LSB Industries' profit margins and revenue from their low-carbon ammonia projects.

Catalysts

Engages in the manufacture, marketing, and sale of chemical products in the United States.

• The completion of plant turnarounds at LSB Industries' Cherokee and Pryor facilities in 2024 is expected to lead to increased production volumes in 2025, enhancing revenue potential.
  
• The company aims to shift its sales mix towards higher-margin downstream products such as AN, nitric acid, and UAN, which is anticipated to improve net margins.
  
• Ongoing energy transition projects, including the low-carbon ammonia initiatives, are expected to generate significant incremental EBITDA, potentially enhancing earnings.
  
• The strategic focus on upgrading ammonia into higher-margin products is expected to lead to increased profitability, thereby positively impacting earnings.
  
• Planned operational improvements and efficiencies are expected to drive cost optimization and profit maximization, potentially leading to improved net margins in 2025.

LSB Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LSB Industries's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.7% today to 6.8% in 3 years time.
• Analysts expect earnings to reach $42.6 million (and earnings per share of $0.61) by about April 2028, up from $-19.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $52 million in earnings, and the most bearish expecting $33.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.6x on those 2028 earnings, up from -24.3x today. This future PE is greater than the current PE for the US Chemicals industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 0.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.07%, as per the Simply Wall St company report.

LSB Industries Future Earnings Per Share Growth

Risks

• LSB Industries is still awaiting EPA approval for a key permit for its El Dorado CCS project, which could delay revenue from this low-carbon ammonia initiative and affect overall company earnings.
  
• The increasing natural gas prices, which are a key input for ammonia production, could pressure profit margins if not fully passed on to customers, impacting net margins.
  
• The company is facing potential trade disruptions and price volatility due to possible tariffs on mulch tilizer imports from Canada and Mexico, complicating U.S. nitrogen import dynamics and affecting revenue stability.
  
• There is execution risk tied to the expansion plans in the ammonia sector, as seen with LSB's need to achieve stated production goals, which could impact revenue if not met on schedule.
  
• Uncertainty in the adoption and demand timing for low-carbon ammonia due to fluctuating European regulations and global competitiveness may delay expected revenue growth from this sector.

Valuation

• The analysts have a consensus price target of $10.333 for LSB Industries 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 $15.0, and the most bearish reporting a price target of just $8.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $628.0 million, earnings will come to $42.6 million, and it would be trading on a PE ratio of 22.6x, assuming you use a discount rate of 9.1%.
• Given the current share price of $6.54, the analyst price target of $10.33 is 36.7% 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.