Next-generation Platforms And eVoS, eVerest, NavX Will Foster Industry Success

Key Takeaways

• Growth in data centers and semiconductors, along with strategic investments in R&D, is expected to drive revenue and market share growth.
  
• Optimizing production and closing the China factory should improve margins, offset tariff impacts, and drive earnings growth.
  
• Closure of China factory and new tariffs create financial and operational challenges, impacting cost structures, revenue opportunities, and earnings forecasts across multiple markets.

Catalysts

Provides precision power conversion, measurement, and control solutions in the United States and internationally.

• Advanced Energy Industries expects growth from multiple design wins in data center computing and semiconductors, with new products being incorporated into next-generation platforms, which will likely drive revenue and market share growth.
  
• Investments in R&D and modular design have reduced development cycle times, allowing for rapid delivery of customized solutions, which is expected to positively impact future revenue and earnings.
  
• The closure of the last China factory and a broad manufacturing footprint in countries with favorable tariff regimes are anticipated to improve gross margins by optimizing production and mitigating tariff impacts.
  
• Strong demand for new product lines such as eVoS, eVerest, and NavX, with significant ramp-ups expected in the second half of 2025 and beyond, suggests potential for increased revenue and earnings growth in semiconductor markets.
  
• Improving operational efficiencies and strategic manufacturing actions are expected to offset tariff costs and assist in achieving gross margin expansion goals, enhancing future earnings potential.

Advanced Energy Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Advanced Energy Industries's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.8% today to 15.3% in 3 years time.
• Analysts expect earnings to reach $306.3 million (and earnings per share of $8.2) by about May 2028, up from $75.2 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 19.2x on those 2028 earnings, down from 53.7x today. This future PE is lower than the current PE for the US Electronic industry at 20.0x.
• Analysts expect the number of shares outstanding to grow by 0.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.62%, as per the Simply Wall St company report.

Advanced Energy Industries Future Earnings Per Share Growth

Risks

• The closure of Advanced Energy's China factory and the new tariff regime may introduce financial uncertainty, potentially affecting cost savings and impacting gross margins adversely.
  
• While efforts to manage the manufacturing footprint are underway, the increased tariff expenses could raise production costs and challenge the company's ability to fully realize its operating margin targets.
  
• The company is experiencing inventory issues in the Industrial & Medical segment, reflecting volatile demand and slow growth, which may constrain revenue opportunities in this market.
  
• Economic uncertainties and the introduction of new tariffs could delay the recovery pace in the Industrial & Medical markets, possibly affecting revenue growth expectations.
  
• Despite anticipated growth, macroeconomic risks and potential geopolitical issues might impact customer demand projections in the data center and semiconductor markets, potentially influencing revenue and earnings forecasts.

Valuation

• The analysts have a consensus price target of $124.1 for Advanced Energy 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 $140.0, and the most bearish reporting a price target of just $98.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $306.3 million, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $107.22, the analyst price target of $124.1 is 13.6% 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.