Modular Platform And X8 Product Will Fuel Future Expansion

Key Takeaways

• Schindler's modular platform rollout and digital innovation are driving order growth and revenue in the EMEA and high-value projects.
  
• Efficiency savings and modernization growth enhance margins, while a strong order backlog supports future revenue and profitability.
  
• Schindler faces multiple challenges, including exposure to China's market contraction, tariff impacts, currency risks, and pricing pressures, all impacting revenue and margins.

Catalysts

Engages in the production, installation, maintenance, and modernization of elevators, escalators, and moving walks worldwide.

• The rollout of Schindler's new modular platform is showing positive impact in the EMEA region and is expected to drive order growth, potentially increasing revenue from new installations.
  
• Schindler's strong performance in the modernization business, with close to 20% growth, indicates an ongoing expansion of this higher-margin business segment, which could positively impact net margins.
  
• The efficiency savings from SG&A initiatives and procurement operations are beginning to contribute, enhancing EBIT margins, which suggests potential future earnings improvement.
  
• Schindler's innovation launch with the X8 product leveraging digital technology could stimulate future growth in high-value projects, contributing to revenue and profitability enhancement.
  
• A robust order backlog up 9% year-on-year indicates potential revenue growth and profitability, assuming efficient execution strategies in the upcoming quarters.

Schindler Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Schindler Holding's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 9.8% in 3 years time.
• Analysts expect earnings to reach CHF 1.2 billion (and earnings per share of CHF 11.38) by about May 2028, up from CHF 950.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.0x on those 2028 earnings, down from 33.0x today. This future PE is greater than the current PE for the GB Machinery industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 5.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.72%, as per the Simply Wall St company report.

Schindler Holding Future Earnings Per Share Growth

Risks

• Schindler's exposure to the Chinese market poses a risk, as new installation orders in China decreased significantly, with expectations of continued contraction due to declining residential floor space, impacting revenue and margins negatively.
  
• Anticipated tariffs, especially those on imports to the U.S. from China, estimated to have a gross impact of CHF 33 million could strain Schindler's margins and profitability, as mitigation strategies may not fully offset these costs in 2025.
  
• The weaker-than-expected start to the year in the Americas new installation market, particularly in North America, may result in reduced volumes, negatively affecting revenue growth projections and potentially impacting net margins.
  
• The high Swiss franc exchange rate poses a risk by potentially reducing top-line revenue by up to 5 percentage points, assuming current levels persist, impacting overall financial performance.
  
• Despite growth, pricing pressures in new installations, notably in China, coupled with legacy backlog impacts, could hinder improvements in net margins as the market does not show signs of substantial recovery.

Valuation

• The analysts have a consensus price target of CHF276.833 for Schindler Holding 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 CHF311.0, and the most bearish reporting a price target of just CHF248.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF12.4 billion, earnings will come to CHF1.2 billion, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 4.7%.
  
• Given the current share price of CHF292.0, the analyst price target of CHF276.83 is 5.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.