Automation, Malaysia Facilities And E-Commerce Alliances Will Drive Efficiency

Key Takeaways

• Strategic partnerships and automation growth are set to boost revenue and enhance margin profiles.
  
• Facility expansion in Malaysia and decreased CapEx are expected to lower costs and improve cash flow.
  
• Ranpak's financial stability is threatened by currency fluctuations, dependency on Europe, key client concentration, rising costs, and automation losses.

Catalysts

Provides product protection solutions and end-of-line automation solutions for e-commerce and industrial supply chains in North America, Europe, and Asia.

• Ranpak experienced significant growth in automation revenue, which increased by over 40% in 2024 and is expected to grow another 50% in 2025, enhancing future revenue streams and margin profiles.
  
• The company successfully expanded its facilities in Malaysia to serve the APAC market, which is anticipated to reduce production and logistics costs and bolster net margins.
  
• Ranpak has aligned economically with the largest e-commerce company in the world, which could significantly increase enterprise account volume and drive revenue growth.
  
• The company's significant reduction in CapEx due to the completion of their investment cycle positions them to generate more free cash flow, improve earnings, and decrease leverage.
  
• Launching strategic technology partnerships and products that enhance automation and efficiency, such as those with Rabot and Pickle Robot, can increase customer acquisition and retention, impacting overall revenue and earnings positively.

Ranpak Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ranpak Holdings's revenue will grow by 7.4% annually over the next 3 years.
• Analysts are not forecasting that Ranpak Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ranpak Holdings's profit margin will increase from -5.8% to the average US Packaging industry of 6.6% in 3 years.
• If Ranpak Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $30.3 million (and earnings per share of $0.35) by about April 2028, up from $-21.5 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 39.9x on those 2028 earnings, up from -14.0x today. This future PE is greater than the current PE for the US Packaging industry at 22.1x.
• Analysts expect the number of shares outstanding to grow by 0.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Ranpak Holdings Future Earnings Per Share Growth

Risks

• Ranpak faces potential risk from currency fluctuations, as more than 50% of its sales are influenced by foreign exchange variations, specifically the euro to dollar exchange rate. This can impact net revenue and earnings unpredictably despite recent adjustments in their reporting methods.
  
• The growth in automation, while promising, currently operates at a loss, with a negative $7 million contribution to adjusted EBITDA in 2024. The company's expectation to reach breakeven by 2025 is contingent on significant growth, adding pressure on net margins in the short term.
  
• Economic uncertainty and a challenging macro environment in Europe have led to tempered expectations in this key market, potentially impacting overall revenue and earnings growth given the importance of Europe to Ranpak’s business.
  
• The concentration of a significant portion of revenue on large enterprise accounts and specific clients like Amazon represents a risk of volatility, where changes in these relationships or operational challenges could sharply impact revenue and cash flow.
  
• Rising input costs in certain regions, such as the increased pricing of Dutch natural gas, can lead to higher operational expenses, pressuring net margins, especially if these costs persist or escalate throughout 2025.

Valuation

• The analysts have a consensus price target of $11.167 for Ranpak 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 $15.0, and the most bearish reporting a price target of just $7.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $456.7 million, earnings will come to $30.3 million, and it would be trading on a PE ratio of 39.9x, assuming you use a discount rate of 8.0%.
• Given the current share price of $3.58, the analyst price target of $11.17 is 67.9% 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.