Accelerated Innovation And EV Focus Propel Growth Amidst Global Challenges

Key Takeaways

• Strategic emphasis on electric vehicles and future innovation could drive sales growth and enhance margins, boosting revenue and earnings.
  
• Strong cash flow and strategic inventory actions could improve financial stability, with share buybacks potentially enhancing earnings per share.
  
• Supply chain issues, weak Chinese demand, and negative pricing effects are pressuring BMW's revenue, while tariffs on Chinese EVs threaten future growth.

Catalysts

Engages in the development, manufacture, and sale of automobiles and motorcycles, and spare parts and accessories worldwide.

• The successful progress in implementing technical measures worldwide is expected to improve product mix and increase sales volumes in Q4, which could positively impact revenue and earnings.
  
• The increase in the share of all-electric vehicles and the upcoming launch of the Neue Klasse is likely to boost future sales growth, contributing to revenue and potentially higher margins due to the higher demand for electric vehicles.
  
• The company's strategic investment in research and development and capital expenditure, peaking in 2024, indicates a focus on future innovation, which could drive revenue growth and efficiency improvements, impacting earnings positively.
  
• The restructuring of inventory levels and anticipated strong free cash flow in Q4 could enhance financial stability and contribute to stronger earnings, improving net margins.
  
• The continuation of the share buyback program, set to conclude earlier than planned, could potentially increase earnings per share and positively impact stock valuation.

Bayerische Motoren Werke Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bayerische Motoren Werke's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 6.0% in 3 years time.
• Analysts expect earnings to reach €9.8 billion (and earnings per share of €16.17) by about November 2027, up from €8.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €11.4 billion in earnings, and the most bearish expecting €7.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.3x on those 2027 earnings, up from 5.4x today. This future PE is lower than the current PE for the GB Auto industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 1.02% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.2%, as per the Simply Wall St company report.

Bayerische Motoren Werke Future Earnings Per Share Growth

Risks

• Temporary delivery stops and technical measures related to the Integrated Braking System (IBS) have led to increased inventory levels, higher warranty expenses, and reduced sales, impacting the company’s revenue and margins negatively.
  
• Ongoing muted demand and weak consumer sentiment in China, a key market for BMW, are adversely affecting sales volumes and pricing, thus pressuring revenues and earnings.
  
• Negative impacts from volume, model mix, and pricing have detracted €2.1 billion from EBIT due to sales declines and a challenging price environment globally, directly affecting earnings.
  
• The financial result was impacted by negative fair value measurement effects, reducing the group EBT to €838 million, indicating a risk to overall profitability from financial and market volatility.
  
• The introduction of tariffs on electric vehicles imported from China could undermine global business models and profitability, especially in the EV segment, affecting future revenue growth and international market positioning.

Valuation

• The analysts have a consensus price target of €91.08 for Bayerische Motoren Werke 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 €154.0, and the most bearish reporting a price target of just €60.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €164.2 billion, earnings will come to €9.8 billion, and it would be trading on a PE ratio of 7.3x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of €69.82, the analyst's price target of €91.08 is 23.3% 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.