Digital Shift Will Erode Legacy Currency Solutions

Key Takeaways

• Shifting to digital and software-based payments undermines Crane NXT's core hardware business, escalating long-term revenue and margin pressures.
  
• Growing regulatory, ESG, and customer concentration risks increase operational costs and revenue volatility, challenging Crane NXT's profitability and competitive position.
  
• Strong execution, technological leadership, and strategic expansion position Crane NXT for sustained growth, operating margin improvement, and earnings stability in security-focused markets.

Catalysts

Operates as an industrial technology company that provides technology solutions to secure, detect, and authenticate customers’ important assets.

• The accelerating global shift toward digital payments and the shrinking reliance on physical cash is likely to significantly erode demand for Crane NXT's core currency handling and authentication solutions, putting long-term pressure on both revenue and backlog in its currency and payment-related segments.
  
• Regulatory and cybersecurity standards are evolving in a way that encourages customers to migrate from hardware-based security and authentication toward purely software and cloud-based solutions, reducing the addressable market for Crane NXT's legacy products and risking declining revenues in key product lines over time.
  
• Rising ESG expectations and pressure on hardware manufacturing, particularly for currency and vending-related products, could lead to increasing operating costs from compliance requirements while also making Crane NXT's business model less attractive to both customers and investors over the long run, ultimately pressing on profitability and limiting net margin expansion.
  
• The company's ongoing dependence on a concentrated customer base-especially central banks and government entities-means that any reduction in orders or customer switches can drive volatility in revenue, as seen with historical fluctuations in project timing and order mix, and this risk only grows as cash usage declines globally.
  
• Sustained R&D and capex are required just to keep pace with rapidly advancing security threats and shifting technology demands, but as software-first competitors erode pricing power and market share, Crane NXT is likely to face persistent net margin pressure and stagnating or declining long-term earnings despite recent operational synergies from M&A.

Crane NXT Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Crane NXT compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Crane NXT's revenue will grow by 8.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 9.8% today to 18.9% in 3 years time.
• The bearish analysts expect earnings to reach $369.2 million (and earnings per share of $6.26) by about August 2028, up from $151.3 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 bearish analyst cohort, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, down from 23.0x today. This future PE is lower than the current PE for the US Electronic industry at 23.8x.
• Analysts expect the number of shares outstanding to grow by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.02%, as per the Simply Wall St company report.

Crane NXT Future Earnings Per Share Growth

Risks

• Crane NXT has demonstrated strong execution in integrating recent acquisitions, rapidly realizing operational synergies and cost structure reductions with the Crane Business System, which is likely to drive operating profit margins higher by 2026, improving net margins and long-term earnings.
  
• The company's technology leadership in authentication, gaming, and currency solutions, including innovations like Fortress and JetScan Ultra, positions it to benefit from ongoing global demand for secure payment and authentication systems, supporting sustained revenue growth.
  
• Robust and recurring backlog in both international currency and gaming segments (with high double-digit gaming order growth and a record $400 million international currency backlog) provides visibility into near
• and mid-term revenue and earnings stability.
  
• Expansion into high-growth areas such as digital brand authentication, government ID, and tax stamp solutions for governments aligns with secular trends of increased anti-counterfeiting measures and global automation, likely sustaining or increasing sales and market share.
  
• The company maintains a strong balance sheet and high free cash flow conversion, enabling continued investment in R&D and disciplined M&A, which may further expand Crane NXT's product portfolio, drive above-market growth, and contribute to higher long-term earnings.

Valuation

• The assumed bearish price target for Crane NXT is $57.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Crane NXT's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $88.0, and the most bearish reporting a price target of just $57.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $369.2 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $60.59, the bearish analyst price target of $57.0 is 6.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.