Adapting Operations And Embracing Diverse Powertrains Will Strengthen Future Resilience

Key Takeaways

• Porsche's adaptable operations and product recalibration could foster revenue growth amidst changing market conditions and BEV transition delays.
  
• Diverse powertrain strategy and cost-efficiency initiatives could enhance net margins and profitability despite regulatory and market challenges.
  
• Supply chain issues, weakened China demand, and rising costs threaten Porsche's revenue growth and profitability.

Catalysts

Engages in automotive and financial services business in Germany, Europe, North America, China, and internationally.

• The recalibration of Porsche's product offering and increased focus on flexible and resilient operations in response to changing demand (especially in China) and a slower BEV transformation may position the company for future revenue growth as it adjusts to market conditions.
  
• The strength of Porsche's order book, particularly with the robust demand for new models like the 911 and the Macan, suggests a strong revenue stream well into 2025, contributing positively to future earnings.
  
• Continuous investment in the development of Porsche's product portfolio, digitalization, and strategic partnerships indicates potential for future growth that can positively impact revenue and margins.
  
• Porsche's commitment to maintaining a diverse powertrain strategy, involving efficient ICEs, hybrids, and BEVs, may help them navigate regulatory challenges and customer preference shifts, potentially improving net margins and overall revenue.
  
• Operational measures aimed at increasing cost efficiency and flexibility, including potential adjustments in the Chinese dealer network and wholesale operations, could enhance net margins by reducing costs and improving profitability even at lower sales volumes.

Dr. Ing. h.c. F. Porsche Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dr. Ing. h.c. F. Porsche's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.2% today to 12.5% in 3 years time.
• Analysts expect earnings to reach €5.8 billion (and earnings per share of €6.34) by about December 2027, up from €4.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €6.5 billion in earnings, and the most bearish expecting €4.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.1x on those 2027 earnings, up from 13.9x today. This future PE is lower than the current PE for the DE Auto industry at 21.6x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.83%, as per the Simply Wall St company report.

Dr. Ing. h.c. F. Porsche Future Earnings Per Share Growth

Risks

• Supply chain disruptions and lower parts availability have significantly impacted results in 2024, and ongoing supply chain challenges could continue to hinder revenue and profitability.
  
• Revenues have already declined by 5% in the first 9 months of 2024 due to fewer vehicle availabilities and a decline in vehicle sales, highlighting risks to future revenue stability.
  
• Specific challenges in China, such as weaker demand in the BEV segment, could continue to affect Porsche's sales growth and market share in this important region, potentially impacting overall revenue.
  
• Elevated material costs from inflation and increased sales and marketing expenses for digitalization are putting pressure on net margins and operating profits.
  
• Adjustments to the dealer network and wholesale organization in China due to decreased sales create additional risks and costs that could negatively affect net margins.

Valuation

• The analysts have a consensus price target of €79.17 for Dr. Ing. h.c. F. Porsche 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 €110.0, and the most bearish reporting a price target of just €61.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €46.5 billion, earnings will come to €5.8 billion, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 8.8%.
• Given the current share price of €60.84, the analyst's price target of €79.17 is 23.2% 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.