Pesqueria Center Investment And Nearshoring Will Fuel Steel Demand

Key Takeaways

• Stronger local market position and improved margins are expected due to government curbs on steel imports and product upgrades targeting higher-value steel.
  
• Capacity expansion and cost reduction programs position Ternium to capitalize on rising steel demand from nearshoring and infrastructure growth in Latin America.
  
• Persistent global overcapacity, high capital requirements, geographic concentration, rising costs, and weak sector demand increase pressure on margins, earnings stability, and growth prospects.

Catalysts

Manufactures and distributes steel products in Mexico, Southern Region, Brazil, and internationally.

• Recent government measures to curb unfair steel imports and close loopholes in Mexico are expected to reduce foreign competition, enhance local market share for Ternium-especially in flat steel products-and support higher realized prices, driving improved revenues and EBITDA margins over the next quarters.
  
• Substantial ongoing investment in the Pesqueria Industrial Center in Mexico is set to increase capacity by 1.5 million tons annually, with new cold rolling and galvanized lines starting ramp-up from late 2025 onward, positioning Ternium to capitalize on potential long-term demand growth from nearshoring and infrastructure projects-boosting future top-line growth and operational leverage.
  
• Execution of a $300 million cost reduction program in 2025, achieved primarily through procurement initiatives, process optimization, production rebalancing, and energy efficiency (including wind power), is expected to lower per-ton production costs and meaningfully enhance net margins.
  
• Expansion and product upgrade initiatives, such as the shift from old, inefficient mills to advanced lines producing higher-value steel (e.g., galvanized, AHSS), should support better product mix, higher average selling prices, and stronger EBITDA per ton as capacity ramps up.
  
• Increasing regional infrastructure and manufacturing investments-fueled by the global shift toward nearshoring, supply-chain resilience, and energy transition-are anticipated to sustain robust baseline steel demand in Latin America, offering long-term revenue and earnings growth potential for Ternium relative to current valuations.

Ternium Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ternium's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.7% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $835.5 million (and earnings per share of $4.58) by about August 2028, up from $594.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.4 billion in earnings, and the most bearish expecting $351 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, down from 10.3x today. This future PE is lower than the current PE for the US Metals and Mining industry at 21.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.64%, as per the Simply Wall St company report.

Ternium Future Earnings Per Share Growth

Risks

• Persistent global overcapacity and rising imports-especially from Asian producers-are undermining the competitiveness of Ternium's key markets in Brazil and Mexico; if unfair trade practices continue unchecked or retaliation is limited, this could lead to long-term price suppression and sustained margin pressure, negatively impacting both revenue and net margins.
  
• High and peaking capital expenditure requirements, particularly the $4 billion investment cycle and ongoing projects in Pesqueria, will significantly strain free cash flow in the coming years; delays in ramp-up or underwhelming demand in the ramp-up period would place further pressure on near-to-medium-term earnings and financial flexibility.
  
• Significant geographic concentration in Latin America (Mexico, Brazil, Argentina) exposes Ternium to heightened currency volatility, political risk, and macroeconomic uncertainty; recent fluctuations in the Mexican peso and Brazilian real have already affected financial results, increasing the risk of unpredictable earnings swings and revenue contraction.
  
• Rising cost pressures associated with energy and the need to adopt decarbonization technologies may erode Ternium's cost advantage over time; if access to reliable, low-cost, low-carbon energy is not secured, margin improvement efforts could be undermined by higher operational expenses and potential future compliance costs, adversely affecting operating margins.
  
• Structural slowdown or stagnation in steel-demanding sectors such as construction and traditional automotive, noted by subdued construction activity in Argentina and only marginal growth prospects in Mexico, could result in weaker long-term volume growth, lower utilization rates, and downward pressure on both revenue and gross margins.

Valuation

• The analysts have a consensus price target of $34.667 for Ternium 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 $41.0, and the most bearish reporting a price target of just $26.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.5 billion, earnings will come to $835.5 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 7.6%.
• Given the current share price of $31.26, the analyst price target of $34.67 is 9.8% 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.