Urbanization And Decarbonization Will Unlock Vast Opportunities

Key Takeaways

• Strong, recurring demand in essential services and environmental sectors is driving sustained, above-average sales growth and positioning Sulzer for long-term industry leadership.
  
• Operational improvements and service expansion are enabling significant margin gains and earnings resilience, potentially leading to higher market valuations over time.
  
• Overcapacity in Asia, geopolitical tensions, weak Chemtech performance, currency headwinds, and limited margin expansion threaten Sulzer's revenue growth, profitability, and business diversification.

Catalysts

Develops and sells products and services for fluid engineering and chemical processing applications worldwide.

• While analyst consensus sees steady sales growth from Sulzer's exposure to essential markets, they may be underestimating just how durable and rapid this growth could be as multiple divisions (especially Flow and Services) are now compounding double-digit sales gains, sustained by record order pipelines and an ability to execute on a sizable backlog-potentially leading to revenue growth running structurally higher than sector averages for several more years.
  
• Analysts broadly expect incremental improvement in margins from operational excellence, but ongoing company-wide deployment of value stream mapping, market-driven pricing, and product innovation is laying the foundation for step-changes in EBITDA margin and net margin, with potential for overshoot versus current midterm targets as under-optimized divisions like Services accelerate cost discipline and leverage their scale.
  
• Surging demand for energy efficiency and decarbonization is driving an expanding pipeline of large-scale environmental technology projects-including major new orders in biopolymers, carbon capture, and sustainable aviation fuels-that are only beginning to ramp and could unlock multi-year upside in both order intake and high-margin revenue across all divisions.
  
• The rapid growth of Sulzer's aftermarket and service business, now representing half of order intake and growing double digits across regions for multiple years, is creating a more recurring and resilient earnings base that may command higher valuation multiples as gross margin and earnings stability continue to improve.
  
• Ongoing urbanization and global investments in water and wastewater infrastructure are fueling outsized and recurring demand for Sulzer's advanced separation and flow technologies (as demonstrated by double-digit water sales), positioning the company as a long-term winner in the expansion and upgrade of critical infrastructure, with continued upside to top-line growth and return on capital employed.

Sulzer Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Sulzer compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Sulzer's revenue will grow by 6.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 7.6% today to 9.4% in 3 years time.
• The bullish analysts expect earnings to reach CHF 403.2 million (and earnings per share of CHF 12.6) by about August 2028, up from CHF 272.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, which is the same as it is today today. This future PE is lower than the current PE for the GB Machinery industry at 22.6x.
• Analysts expect the number of shares outstanding to decline by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.41%, as per the Simply Wall St company report.

Sulzer Future Earnings Per Share Growth

Risks

• Persistent overcapacity in Asian refinery and petrochemical markets, especially in China, combined with Sulzer's significant exposure (25-30% of Chemtech sales) to this region, raises the risk of prolonged weak demand and lower order intake, negatively impacting group revenues and divisional earnings.
  
• Intensifying geopolitical uncertainty, trade tensions, and tariffs are leading to project delays, lower visibility, and increased market hesitation globally-especially for large CapEx projects-slowing Sulzer's order intake and elevating the risk of future project cancellations, which can dampen revenue growth and cash flow stability.
  
• Chemtech's weak performance, with order intake down 20% and sales down 13.6% in the first half, highlights homegrown execution challenges and overreliance on legacy refinery business, risking a delay in transitioning to higher-growth clean tech, impairing revenue diversification and compressing net margins.
  
• The sharp appreciation of the Swiss franc by 15% against the dollar has already reduced reported sales and EBITDA by CHF 70-80 million and CHF 16 million respectively for the half year, and ongoing currency headwinds could further depress reported financials despite local operating improvements.
  
• While aftermarket and service businesses show organic growth, limited operating leverage and slower margin expansion (only 30 basis points improvement despite nearly 15% sales growth in Services) may constrain Sulzer's ability to sustainably lift EBITDA and profitability, particularly as inflation and rising input costs persist in the industry.

Valuation

• The assumed bullish price target for Sulzer is CHF200.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Sulzer's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF200.0, and the most bearish reporting a price target of just CHF89.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CHF4.3 billion, earnings will come to CHF403.2 million, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 5.4%.
• Given the current share price of CHF155.4, the bullish analyst price target of CHF200.0 is 22.3% 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.