TWI: Initiation of established global manufacturer of wheels, tires and undercarriages.
NYSE:TWI
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Titan International, Inc. (NYSE:TWI) is a global wheel, tire, and undercarriage industrial manufacturer and supplier that primarily serves agriculture and construction customers in both the U.S. and international markets. Titan traces its roots to the Electric Wheel Company in Quincy, Illinois, which was founded in 1890. Titan was incorporated in 1983 and has increased its global footprint and enhanced product offerings through major acquisitions which include the following:
Titan manufactures wheels, tires, and components for use on various agricultural equipment such as tractors, combines, skidders, plows, planters, and irrigation equipment. These products are sold primarily to large equipment manufacturers such as Deere, CNH, and AGCO.
Titan also manufactures undercarriage systems, tires, and wheels for various types of Off-The-Road (OTR) earthmoving, mining, military, construction, and forestry equipment. This includes equipment such as skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks, backhoe loaders, and hydraulic excavators.
In addition, Titan manufactures bias truck tires in Latin America and also offers select products for ATVs, side-by-sides, rock climbers, turf, and other products for the lawn and garden segment. The focus for future growth in this segment will be the development of third-party customer mixing of rubber stock which has strong market potential and has a higher margin profile.
The company has undergone a strategic transformation over the past four years in which EBITDA has increased from $38 million in 2019 to over $200 million in 2023 (estimated). The leverage ratio has decreased from 11.5x in 2019 to approximately 1.0x currently. This transformation included optimizing the product portfolio, selling underperforming assets, strengthening the supply chain, and new product innovation.
The company is experiencing strong secular tailwinds driven by strong agricultural and commodity demand, replacement cycles in agriculture and construction equipment, improving farmer income, and increased infrastructure spending by governments around the world.
As of 9/30/23, the company had $211.9 million in cash and equivalents, positive working capital of $506.5 million, and total debt of $427.3 million. The market capitalization is currently $898.0 million.
We believe Titan can generate average annual revenue growth in the range of 3%-5% over the next 10 years and improve margins over time from current levels.
Our primary valuation tool utilizes a Discounted Cash Flow process. Under the scenario described above, our DCF based valuation target is approximately $19.00 per share. Our target price may be conservative as it utilizes a high discount rate of 12% due to the unpredictability of earnings and higher prevailing interest rates.
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