Local Sourcing And Chinese Expansion Will Drive Future Success

Key Takeaways

• Local supply strategy and Chinese expansion bolster cost competitiveness, support revenue growth, and boost EV/HEV sales volumes.
  
• Cost optimization and robust cash position enhance margins, profit, and support share repurchases and strategic M&A for earnings growth.
  
• Global trade uncertainties and operational challenges could negatively impact Rogers' revenue, profitability, and net margins, requiring strategic adjustments.

Catalysts

Designs, develops, manufactures, and sells engineered materials and components in the United States, other Americas, China, other Asia Pacific countries, Germany, Europe, the Middle East, and Africa.

• Rogers' local-for-local supply strategy is expected to minimize the impact of tariffs, supporting stable operations and aiding revenue growth by ensuring cost competitiveness.
  
• Expansion of the opportunity pipeline with Chinese OEMs and new production facilities in China set to ramp in mid-2025 could boost sales volumes and revenue growth in the EV/HEV and industrial markets.
  
• Cost optimization efforts, including consolidation of facilities and headcount reductions, are projected to yield $25 million in cost savings in 2025, enhancing operating margins and net income.
  
• Strategic focus on securing new design wins in key markets such as EV/HEV and ADAS is expected to drive future revenue growth as these sectors expand.
  
• The company’s robust cash position and reduced CapEx intensity facilitates share repurchases and potential EPS growth, while targeting synergistic M&A opportunities that could further enhance earnings.

Rogers Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rogers's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $74.1 million (and earnings per share of $3.98) by about April 2028, up from $26.1 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 26.5x on those 2028 earnings, down from 42.2x today. This future PE is greater than the current PE for the US Electronic industry at 20.6x.
• Analysts expect the number of shares outstanding to decline 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 7.35%, as per the Simply Wall St company report.

Rogers Future Earnings Per Share Growth

Risks

• There are significant uncertainties due to global trade policies and tariffs, which could negatively impact Rogers' revenue and earnings, particularly concerning the flow of U.S. goods into China.
  
• The company faces softness in its EV/HEV sales and other areas, such as the power module market, which could affect revenue and overall profitability.
  
• The company's gross margins have been affected by utilization headwinds and unfavorable product mix, which could lead to reduced net margins if not addressed.
  
• Ongoing geopolitical and macroeconomic uncertainties, including potential impacts of tariffs and interest rates, could hinder global economic growth and negatively impact Rogers' sales and earnings.
  
• The company is still adjusting and optimizing its cost structure and manufacturing footprint, potentially incurring transitional costs which could impact operating income and net margins.

Valuation

• The analysts have a consensus price target of $88.333 for Rogers 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 $100.0, and the most bearish reporting a price target of just $80.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $899.4 million, earnings will come to $74.1 million, and it would be trading on a PE ratio of 26.5x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $59.43, the analyst price target of $88.33 is 32.7% 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.