Inland Barge Utilization Will Remain Resilient Despite Near Term Rate Pressure

Key Takeaways

• Limited vessel availability and industry consolidation bolster Kirby's pricing power, revenue growth, and margin expansion across its marine transportation business.
  
• Rising data center activity and manufacturing reshoring trends drive multi-year growth opportunities for Kirby's Distribution, Services, and Marine segments, enhancing long-term stability.
  
• Dependence on the US petrochemical market, weak demand, rising costs, and asset upkeep challenges threaten long-term growth, margin stability, and earnings consistency.

Catalysts

Operates domestic tank barges in the United States.

• Supply constraints and industry-wide aging of the barge fleet are restraining new capacity growth, positioning Kirby to benefit from limited vessel availability, capacity consolidation, and rising charter rates over time, which should support steady revenue growth and expanding net margins.
  
• Data center-driven demand for power generation equipment is fueling a robust and growing backlog in Kirby's Distribution and Services segment, indicating sustained multi-year revenue and earnings growth, particularly as data center and industrial investments accelerate nationwide.
  
• Reshoring and U.S. manufacturing investment trends are set to increase movement of raw materials and chemicals, which, combined with customers' preference for domestic Gulf Coast assets, will likely drive long-term volume growth in both Kirby's Inland and Coastal Marine segments, supporting stable utilization rates and higher revenue visibility.
  
• Increasing environmental pressure and expected modal shifts away from trucking toward more efficient, lower-emission barge transport will gradually expand inland waterways' market share, creating secular tailwinds for Kirby's volume growth and enhancing its pricing power and long-term revenue trajectory.
  
• Kirby's strong balance sheet, disciplined capital allocation, and focus on bolt-on acquisitions positions the company to capitalize on consolidation opportunities, boost market share, and generate operating leverage, supporting future revenue and earnings growth as the industry landscape evolves.

Kirby Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kirby's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.3% today to 11.4% in 3 years time.
• Analysts expect earnings to reach $445.6 million (and earnings per share of $7.31) by about September 2028, up from $303.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.5x on those 2028 earnings, up from 16.2x today. This future PE is greater than the current PE for the US Shipping industry at 8.4x.
• Analysts expect the number of shares outstanding to decline by 2.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.57%, as per the Simply Wall St company report.

Kirby Future Earnings Per Share Growth

Risks

• Softness in chemical markets and pullback in petrochemical shipping volumes, influenced by macroeconomic and geopolitical uncertainty, tariffs, and trade policy shifts, is impacting inland barge utilization and may limit revenue growth and earnings in the coming years.
  
• Heavy exposure to the US inland petrochemical market and lack of international diversification increases vulnerability to domestic downturns (e.g., chemical malaise, shifts in crude slates at refineries) and caps Kirby's long-term top-line growth.
  
• Inflationary pressures and persistent industry-wide labor shortages, particularly for skilled mariners, are putting upward pressure on costs, threatening to compress net margins over the long term, especially if pricing power erodes in softer demand environments.
  
• Ongoing softness and secular decline in conventional oil and gas (frac and related equipment) demand, paired with the lumpiness and supply constraints in power generation orders, creates potential for revenue volatility and challenges the stability of earnings and free cash flow.
  
• Increasing supply chain disruptions, aging barge fleet maintenance requirements, and the need for significant capex to maintain or modernize assets may drive higher maintenance costs and working capital needs, placing downward pressure on free cash flow and net margins.

Valuation

• The analysts have a consensus price target of $115.75 for Kirby based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.9 billion, earnings will come to $445.6 million, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 7.6%.
• Given the current share price of $87.87, the analyst price target of $115.75 is 24.1% 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.