SAS Performance And FAM Turnaround Will Unlock New Market Reach

Key Takeaways

• Strong performance in the SAS segment and strategic investments in growth platforms are expected to drive revenue and cash flow growth.
  
• Cost reduction initiatives and turnaround plans aim to improve margins, profitability, and regain customer trust in key areas.
  
• Rising input costs and high leverage may strain Mativ Holdings' profitability, requiring effective cost control and debt management to support revenue growth and operations.

Catalysts

Manufactures and sells specialty materials in the United States, Europe, the Asia Pacific, the Americas, and internationally.

• The SAS segment showed strong performance with continued growth in sales and adjusted EBITDA, driven by increased volumes across all categories, including tapes, labels, liners, and healthcare, which is expected to positively impact revenue and margins.
  
• FAM is implementing a comprehensive turnaround plan for paint protection film, including addressing past quality issues, which is expected to regain customer trust and support revenue and earnings growth.
  
• Expansion into adjacent specialty markets such as medical and optical films, along with the development of a mid-tier price point product, aims to capture additional market share and improve earnings.
  
• Cost reduction initiatives, including the removal of over $20 million in overhead costs in 2024 and plans for an additional $20 million reduction by 2026, are targeted to improve net margins and profitability.
  
• Strategic investments in growth platforms including filtration, release liners, specialty tapes, and healthcare, paired with a 50% increase in the sales pipeline for 2025, are anticipated to drive future revenue and cash flow growth.

Mativ Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mativ Holdings's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.5% today to 3.0% in 3 years time.
• Analysts expect earnings to reach $62.6 million (and earnings per share of $1.15) by about May 2028, up from $-48.9 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 15.8x on those 2028 earnings, up from -5.7x today. This future PE is lower than the current PE for the US Chemicals industry at 18.8x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Mativ Holdings Future Earnings Per Share Growth

Risks

• Mativ is facing higher input and manufacturing costs, leading to a 10% decrease in adjusted EBITDA compared to the previous year, which can impact overall profitability and net margins.
  
• The FAM segment experienced sluggish demand, quality issues in paint protection film, and a volume decline in advanced films, which may lead to continued revenue challenges if not resolved quickly.
  
• The company is facing moderate headwinds on raw material input costs, anticipated to be a $10-$15 million burden in 2025, potentially putting pressure on their earnings and profit margins if cost control measures are unsuccessful.
  
• The company acknowledged a low industrial demand environment persisting longer than expected, indicating potential volatility in revenue growth until the market conditions improve.
  
• High leverage, with a net debt of $995 million and a net leverage ratio of 4.4x, places pressure on cash flow for debt reduction, which could affect the company's ability to fund operations and growth initiatives effectively.

Valuation

• The analysts have a consensus price target of $13.0 for Mativ Holdings 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 $16.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $62.6 million, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $5.11, the analyst price target of $13.0 is 60.7% 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.