Decarbonization And Water Trends Will Shape Environmental Futures

Key Takeaways

• Strong demand for decarbonization and water treatment solutions, along with innovative environmental technologies, is positioning Sulzer for sustainable growth and market leadership.
  
• Operational excellence and a shift toward higher-margin services are improving profitability, with project delays seen as temporary obstacles to otherwise robust future performance.
  
• Structural weakness in legacy markets, global project delays, margin pressure, currency volatility, and execution risk in pivoting to sustainable technologies threaten Sulzer's revenue and profitability outlook.

Catalysts

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

• The accelerating global push for decarbonization, as seen in Sulzer's robust pipeline of projects around carbon capture, sustainable aviation fuels, and bioplastics, is expected to drive future order intake and revenue growth as regulatory and corporate demand for these solutions rises.
  
• Increasing global water scarcity and regulatory requirements for water treatment are fueling double-digit growth in Sulzer's water segment, especially in Flow, supporting resilient top-line expansion across geographies and setting the stage for sustained sales momentum.
  
• The ongoing shift of the order mix toward higher-margin aftermarket services and the company's disciplined execution of operational excellence initiatives are boosting recurring revenues and EBITDA margins, both of which are expected to improve further as Sulzer continues to roll out these programs, especially in Services.
  
• Structural delays in industrial and infrastructure projects due to geopolitical uncertainty are temporarily suppressing reported sales and order intake, but the intact, growing backlog and lack of cancellations suggest pent-up demand, which should support a significant rebound in revenues and earnings once visibility returns.
  
• Innovation and investments in environmental technologies (e.g., hydraulic power recovery, advanced water solutions) are increasingly aligned with long-term customer trends around energy efficiency and sustainability, which should help Sulzer outpace industry growth rates and expand its addressable market-driving both top-line and margin expansion over the long term.

Sulzer Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sulzer's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 9.8% in 3 years time.
• Analysts expect earnings to reach CHF 391.8 million (and earnings per share of CHF 11.98) by about August 2028, up from CHF 272.8 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 16.4x on those 2028 earnings, down from 19.2x today. This future PE is lower than the current PE for the GB Machinery industry at 20.3x.
• 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 5.43%, as per the Simply Wall St company report.

Sulzer Future Earnings Per Share Growth

Risks

• Persistent overcapacity and weak demand in the refinery and petrochemical sectors in China and Asia is expected to continue, with management not anticipating a reversal through 2025–2026; given Chemtech's historical reliance on large projects in these end markets (with China estimated at ~25–30% of Chemtech sales and ~70–80% of business still legacy/refinery-oriented), this structural decline threatens both revenue and margin recovery in Chemtech.
  
• Prolonged geopolitical uncertainty, trade barriers, and tariff volatility are leading customers in multiple regions (including the U.S., Middle East, and Asia) to systematically delay large capital expenditure projects, reducing near-term visibility, increasing inventory and receivables, and creating risk that delayed projects could eventually be cancelled, which would negatively impact order intake, revenue realization, and cash flow.
  
• Intense competition and market saturation, especially from low-cost Asian players, is driving Sulzer to pivot to smaller and more locally-focused projects in China (China for China), rather than high-value exports, potentially pressuring pricing power and gross margins over the medium term as Sulzer adapts to new business models and shorter project cycles.
  
• Significant foreign exchange headwinds-most notably a 15% appreciation of the Swiss franc against the USD-have already eroded sales and EBITDA (CHF 70+ million impact on orders and sales, CHF 16 million on H1 EBITDA), and continuing currency volatility poses ongoing risks to reported financials including sales, net margins, and financial charges.
  
• While Sulzer is increasing investment in sales, services, and environmental solutions, there is still execution risk in implementing Sulzer Excellence and pivoting from legacy to sustainable technologies; the slow pace of margin improvement in service (only +30 bps on ~15% sales growth) and the dependency on a few large new orders in renewables/carbon capture create uncertainty about delivering ambitious midterm EBITDA margin and revenue growth targets.

Valuation

• The analysts have a consensus price target of CHF165.714 for Sulzer 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 CHF200.0, and the most bearish reporting a price target of just CHF89.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF4.0 billion, earnings will come to CHF391.8 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 5.4%.
• Given the current share price of CHF155.4, the analyst price target of CHF165.71 is 6.2% higher. 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.