Curamik Expansion Risks And EV Demand Uncertainty Will Pressure Margins And Earnings Outlook

Catalysts

About Rogers

Rogers Corporation supplies engineered materials for applications across industrial, automotive, aerospace and defense, and portable electronics markets.

What are the underlying business or industry changes driving this perspective?

• The ramp of the new curamik facility in China is already pressuring gross margin guidance by about 80 basis points. If customer qualifications and volume ramps run slower than management expects, extended underutilization could weigh on gross margin and EBITDA for longer and keep earnings growth subdued.
• Management is leaning on long term demand in EV and HEV power substrates. They explicitly flag uncertainty around how far that market can recover for Rogers, so a slower or smaller rebound could limit revenue growth while the company has already committed capital and restructuring costs to support that channel.
• Large cost reduction and footprint programs, including the curamik restructuring in Germany with a US$13 million annual run rate target, depend on smooth transfer of business to new facilities. Any disruption or customer pushback could reduce the realized savings and keep net margins below what current expectations imply.
• The company is pursuing top line growth through new product launches across all business units and entry into adjacent markets. If customer adoption is slower than planned or pricing pressure increases in markets where pricing is set by the broader industry, revenue growth and gross margin could both fall short of management’s ambitions.
• Rogers is increasingly exposed to complex global supply chains and tariff policies. While recent tariff impacts were minor, any reversal of the current delay in tariff rate increases or unfavorable foreign currency moves could pressure gross margin and earnings even if sales hold within the guided ranges.

Assumptions

This narrative explores a more pessimistic perspective on Rogers compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Rogers's revenue will grow by 5.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -8.3% today to 32.4% in 3 years time.
• The bearish analysts expect earnings to reach $305.8 million (and earnings per share of $9.61) by about January 2029, up from $-66.9 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 5.8x on those 2029 earnings, up from -26.9x today. This future PE is lower than the current PE for the US Electronic industry at 27.2x.
• The bearish analysts expect the number of shares outstanding to decline by 2.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.45%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Rogers is pointing to "significant opportunity" to improve performance over the near and long term through new product introductions in all business units and entry into new and adjacent markets. This could support steadier top line growth and earnings rather than the prolonged weakness implied by a bearish view on the share price, directly influencing revenue and EBITDA over time.
• The company is aligning itself with long term demand across industrial, aerospace and defense, ADAS, EV and HEV and portable electronics. Q3 shows areas like industrial and aerospace and defense with year to date growth and low double digit growth in total A&D, so if these secular markets stay healthy, they could underpin revenue and help support gross margin and earnings.
• The curamik expansion in China and the restructuring in Germany are aimed at a more regionally competitive cost structure and are targeted to deliver US$13 million of annual COGS savings by late 2026. Successful customer qualifications and volume ramp at this facility could increase utilization, support market share and lift gross margin and EBITDA beyond a bearish scenario.
• Rogers has been executing cost and expense reduction actions, footprint optimization and a revised operating model that has already coincided with adjusted EBITDA margin at 17.2% of sales in Q3 and lower adjusted operating expenses versus last year. Continued execution on the US$25 million of 2025 savings, the US$32 million annualized run rate in 2026 and further process efficiencies could support higher net margins and cash flow than a pessimistic thesis assumes.
• Management is emphasizing strengthened customer relationships, shorter lead times, improved service levels and a focus on being a benchmark in service and quality by the end of 2026. Together with an active share repurchase program intended to improve shareholder returns, this could support demand, pricing power and per share earnings in a way that contradicts expectations of sustained pressure on the share price and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Rogers is $85.0, which represents up to two standard deviations below the consensus price target of $104.0. This valuation is based on what can be assumed as the expectations of Rogers'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 $127.0, and the most bearish reporting a price target of just $85.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $944.5 million, earnings will come to $305.8 million, and it would be trading on a PE ratio of 5.8x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $99.9, the analyst price target of $85.0 is 17.5% lower. Despite analysts expecting the underlying business 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.