USMCA And Latin American Urbanization Will Secure Market Leadership

Key Takeaways

• Regionalization and advanced low-emission steel capabilities are poised to grant Ternium lasting market leadership and higher margins amid North America's shift to green manufacturing.
  
• Demand from Latin American infrastructure, electric vehicles, and renewables, alongside financial flexibility, position Ternium for outsized growth, earnings, and strategic expansion.
  
• The company faces major strategic, operational, and financial risks from industry overcapacity, regulatory shifts, regional concentration, and challenges in managing costly, delayed investment projects.

Catalysts

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

• Analysts broadly agree that Plan Mexico and USMCA negotiations will help stabilize the market and increase Ternium's revenues, but this view understates the magnitude of the opportunity; a synchronized push for North American regionalization could unlock record market share gains, sustained premium pricing, and multi-year double-digit EBITDA margin expansion as Asian imports are aggressively substituted over time.
  
• Analyst consensus expects Ternium's Mexican expansion and carbon-low steel capabilities to provide margin and revenue benefits; however, the new facilities' advanced technology and first-mover advantage in low-emission automotive steels could accelerate penetration into high-growth end markets, leading to structural margin uplift and market leadership in the continent's transition to green manufacturing.
  
• Global infrastructure buildout and rapid urbanization across Latin America are set to drive a multi-decade demand upcycle for steel, positioning Ternium to outgrow peers through volume expansion and increased throughput, powering robust revenue growth and operating leverage.
  
• Ternium's downstream integration and product diversification strategy will enable it to capture outsized share of the surging demand from electric vehicles and renewable energy sectors, improving product mix toward higher-margin, value-added steels and driving net margin and earnings accretion.
  
• The company's financial flexibility, visible in its strong net cash position and sustained dividend growth even during peak CapEx cycles, positions it for opportunistic M&A or bolt-on projects as industry consolidation accelerates, potentially unlocking significant earnings per share expansion through scale and synergy capture.

Ternium Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Ternium compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Ternium's revenue will grow by 6.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.1% today to 8.1% in 3 years time.
• The bullish analysts expect earnings to reach $1.7 billion (and earnings per share of $8.86) by about July 2028, up from $-348.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.3x on those 2028 earnings, up from -17.8x today. This future PE is lower than the current PE for the US Metals and Mining industry at 23.2x.
• 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 7.88%, as per the Simply Wall St company report.

Ternium Future Earnings Per Share Growth

Risks

• Ternium faces major long-term risk from the global push for green steel and decarbonization, as meeting stricter emissions standards will likely require significant capital expenditures for facility upgrades and could compress margins over time, especially if the company is slow to implement advanced green technologies at scale.
  
• Chronic steel overcapacity and global price competition, especially from subsidized Asian producers, may persist or worsen, resulting in industry-wide downward price pressure and reduced pricing power for Ternium, which could decrease revenue and erode operating margins.
  
• Ternium's concentrated exposure to Latin American markets, notably Mexico, makes it vulnerable to regional economic stagnation, political instability, and regulatory unpredictability, all of which can create volatility in top-line performance and diminish valuation multiples.
  
• Rising trade barriers, ongoing trade tensions, and fragmented global trade could threaten Ternium's ability to grow exports, particularly if USMCA renegotiations or future North American protectionist policies further restrict cross-border steel flows, which could slow revenue growth and hamper earnings potential.
  
• Increased project costs and construction delays, evidenced by the significant budget overrun and delay in the Mexico expansion project, signal ongoing challenges in managing large-scale investments; if these trends persist, elevated capital requirements could weigh on free cash flow and restrict shareholder returns such as dividends.

Valuation

• The assumed bullish price target for Ternium is $43.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ternium's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $43.0, and the most bearish reporting a price target of just $26.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $20.5 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 6.3x, assuming you use a discount rate of 7.9%.
• Given the current share price of $31.64, the bullish analyst price target of $43.0 is 26.4% 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.