North America Orders And ESG Trends Will Spark Future Opportunities

Key Takeaways

• PALFINGER's expansion in North America and focus on service business growth are expected to boost revenue and improve net margins.
  
• Strategic investments and a focus on ESG trends could enhance growth opportunities and positively impact revenue and earnings.
  
• Revenue and profit face continued challenges due to market uncertainties, tariffs, operational inefficiencies, and slow military business growth despite strong order intake.

Catalysts

Produces and sells crane and lifting solutions in Austria and internationally.

• PALFINGER is targeting significant revenue growth in North America, aiming to increase its market share to one-third within the next few years. This expansion is expected to boost overall revenue as North America is seen as the region with the most potential for growth.
  
• The company has maintained a high order intake since Q4 2024, particularly in EMEA, which lays a strong foundation for revenue recovery and growth in future quarters. This strong order book is likely to lead to increased revenues and potentially higher net margins if operational efficiencies are realized.
  
• PALFINGER is focusing on expanding its service business, aiming to double its service revenue in the coming years. Since service business typically carries higher margins, this expansion is expected to improve net margins and overall earnings.
  
• The company is planning to increase its investments strategically in North America, APAC, and the defense sector through the potential sale of treasury shares. This could accelerate growth opportunities and investments, positively impacting revenue and earnings if executed effectively.
  
• PALFINGER's involvement in industries benefiting from ESG trends, such as offshore wind and electrification solutions, is expected to be a strong driver of future growth. This focus could enhance both revenue and net margins due to the increasing demand and potentially higher margins in these sectors.

Palfinger Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Palfinger's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.8% today to 5.5% in 3 years time.
• Analysts expect earnings to reach €149.6 million (and earnings per share of €3.86) by about May 2028, up from €89.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €164.7 million in earnings, and the most bearish expecting €127.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, down from 11.1x today. This future PE is lower than the current PE for the GB Machinery industry at 11.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.24%, as per the Simply Wall St company report.

Palfinger Future Earnings Per Share Growth

Risks

• Revenue and profit declined in Q1 2025, despite a strong order intake, suggesting that financial performance may continue to face challenges due to uncertain market conditions and subdued demand, particularly in North America, impacting earnings.
  
• The Trump tariff policy is causing uncertainty in the North American market, leading to held-back orders and potentially limiting revenue growth from this key region, affecting overall revenue projections.
  
• The operations segment has seen a reduction in external revenue and EBIT, partly due to underutilization and challenges in third-party manufacturing, indicating potential ongoing weaknesses in operational efficiency and profitability.
  
• Although there is a potential for increased military-related business, it is a long-term prospect and heavily contingent on geopolitical developments, meaning short-term revenue growth may not benefit from this sector.
  
• The tail lift business is non-core and undergoing restructuring, with no immediate plans for sale; operational inefficiencies here may continue to burden profitability and net margins until a strategic decision is made.

Valuation

• The analysts have a consensus price target of €34.5 for Palfinger 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 €40.0, and the most bearish reporting a price target of just €27.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.7 billion, earnings will come to €149.6 million, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of €28.65, the analyst price target of €34.5 is 17.0% 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.