OERL: Diversified Portfolio Will Support Resilience Amid Revenue Challenges

Key Takeaways

• Strategic focus on advanced surface solutions and innovation positions Oerlikon to capitalize on demand in electrification, e-mobility, and high-tech industrial sectors.
  
• Cost optimization, divestments, and geographic breadth are set to enhance margins, reduce risk, and improve business resilience and growth opportunities.
  
• Shifting to a narrower surface solutions focus heightens Oerlikon's exposure to cyclical risks, margin pressures, and innovation challenges amid ongoing geopolitical and industrial market headwinds.

Catalysts

Provides surface engineering, polymer processing, and additive manufacturing services in Europe, the Americas, and the Asia-Pacific.

• Oerlikon's continued strategic focus on advanced surface solutions for electrification, e-mobility, aviation, and energy-efficient manufacturing positions the company to benefit from growing demand arising as manufacturers invest in next-generation batteries, lightweight automotive components, and more sustainable industrial processes-supporting higher medium-term revenue growth and improved order backlog.
  
• Structural cost-out measures, implemented consistently as part of the pure play transformation, are expected to materially enhance operating margins and net earnings beginning in H2 2025, with further sustainable improvements into 2026, as portfolio optimization and divestments (e.g., Barmag) streamline the business and reduce pension liabilities.
  
• Oerlikon's ongoing innovation pipeline-including new product launches in PVD, CVD coatings, and thermal spray equipment-will allow the company to address increasingly complex, high-value engineering demands in aerospace, semiconductor, and medical verticals, improving business mix quality, expanding solution offerings, and driving margin-accretive revenue.
  
• Heightened reshoring and regionalization trends in the U.S. and Europe are pushing manufacturers toward trusted, high-tech, and locally embedded suppliers; Oerlikon's broad geographic production footprint and strong customer relationships position it to gain market share, driving resilience in sales and incremental margin expansion.
  
• The sale of Barmag, along with expected cash proceeds and sizable pension liability reduction in Q4 2025, will further lower debt and financial risk, enabling greater investment in high-growth opportunities and/or potential shareholder returns, with positive implications for free cash flow and future net earnings.

OC Oerlikon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OC Oerlikon's revenue will decrease by 8.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.0% today to 8.6% in 3 years time.
• Analysts expect earnings to reach CHF 152.0 million (and earnings per share of CHF 0.28) by about September 2028, up from CHF 1.0 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 11.5x on those 2028 earnings, down from 938.4x today. This future PE is lower than the current PE for the GB Machinery industry at 21.8x.
• Analysts expect the number of shares outstanding to grow by 3.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.87%, as per the Simply Wall St company report.

OC Oerlikon Future Earnings Per Share Growth

Risks

• Ongoing trade tensions, geopolitical risks, and especially tariff-related uncertainties-particularly between the EU, US, and Switzerland-create unpredictable export and cross-border demand for Oerlikon's technologies, potentially leading to reduced top-line revenue and order backlog if customers delay/cancel investments due to uncertainty.
  
• Oerlikon's heavy exposure to early-cyclical, industrial end markets such as automotive and general industry means continued volatility in revenue and operating earnings, especially as PMIs in Europe contract and capex in legacy sectors stagnates.
  
• Although the company is executing cost-out measures, ongoing margin compression from product mix deterioration (service and materials down, lower-margin equipment up) and currency headwinds (Swiss franc appreciation) risk sustained pressure on net margins if not offset by lasting end-market recovery.
  
• Several impairments, halted R&D projects, and write-downs in segments like Nitriding, green hydrogen, solid-state batteries, and titanium powders suggest that parts of the innovation pipeline have become obsolete, face slow adoption, or fail to meet profitability hurdles, threatening long-term growth prospects and future revenue streams.
  
• With the Barmag divestment, Oerlikon will operate a smaller, less diversified business focused more tightly on surface solutions; while the pure play strategy offers upside, it also increases exposure to sector downturns, client concentration, and cyclical swings, heightening long-term risks to revenue stability and resilience.

Valuation

• The analysts have a consensus price target of CHF3.798 for OC Oerlikon 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 CHF4.75, and the most bearish reporting a price target of just CHF3.24.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF1.8 billion, earnings will come to CHF152.0 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 8.9%.
• Given the current share price of CHF2.88, the analyst price target of CHF3.8 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.