Strong Order Backlog And Offshore Wind Will Strengthen Future Prospects

Key Takeaways

• Strong order backlog and disciplined project selectivity suggest predictable revenue growth and improved profit margins.
  
• Strategic focus on offshore wind and technology investments could enhance revenue and market position.
  
• Integration challenges with Siemens Gamesa, fluctuating demand for gas turbines, and supply chain dynamics pose risks to revenue growth and net margins.

Catalysts

Operates as an energy technology company worldwide.

• Siemens Energy has a strong order backlog of €131 billion, covering 93% of revenue for the current year, which suggests high future revenue predictability and potential growth in the medium to long term.
  
• The margin quality in the order backlog is improving, which could lead to enhanced net margins as these orders are executed.
  
• Significant growth potential in offshore wind, particularly with the expected auctions for more than 20 gigawatts globally in 2025, could boost future revenue and earnings.
  
• Strong operational performance with an 18% revenue growth in Q1 FY2025 and a focus on disciplined project selectivity and cost efficiency are likely to improve net margins and profitability further.
  
• Strategic investments in capacity expansion and technological leadership, including gas turbines and offshore wind, are expected to support revenue growth while maintaining or enhancing margins.

Siemens Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Siemens Energy's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 7.2% in 3 years time.
• Analysts expect earnings to reach €3.5 billion (and earnings per share of €3.89) by about July 2028, up from €198.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €2.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, down from 386.4x today. This future PE is lower than the current PE for the DE Electrical industry at 44.1x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.46%, as per the Simply Wall St company report.

Siemens Energy Future Earnings Per Share Growth

Risks

• There are ongoing challenges related to the integration and profitability of Siemens Gamesa, particularly with onshore wind sales and temporary interruptions in sales activities, which could affect future revenue growth and net margins.
  
• Fluctuations in the demand for gas turbines, driven partly by specific regional dynamics and infrastructure investments, present a risk if market conditions or customer needs change, potentially impacting overall revenues and profits.
  
• The strategy to expand capacities responsibly to avoid overcapacity involves inherent risks; any misjudgments could lead to financial inefficiencies and impact net margins.
  
• The company faces challenges from evolving supply chain dynamics, such as the need for greater regional manufacturing and potential tariffs, which could increase costs and impact net margins if not managed effectively.
  
• Siemens Energy anticipates strong competition, especially in offshore wind from Chinese OEMs, which may require further investment in technology development, potentially impacting earnings if not balanced well with revenue growth.

Valuation

• The analysts have a consensus price target of €79.778 for Siemens Energy 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 €108.0, and the most bearish reporting a price target of just €37.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €48.4 billion, earnings will come to €3.5 billion, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 6.5%.
• Given the current share price of €96.82, the analyst price target of €79.78 is 21.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.