Focusing On Automation And Digitalization Will Drive Future Opportunities

Key Takeaways

• Siemens aims to grow profitable revenue by transforming into a tech company, focusing on electrification, automation, and digitalization.
  
• The company targets higher margins and stable growth by expanding its digital business, including SaaS and strategic acquisitions, boosting revenue quality.
  
• Macroeconomic uncertainties, competitive pressures, and strategic transitions may challenge Siemens' revenue growth and profit margins in both short and long term.

Catalysts

A technology company, focuses in the areas of automation and digitalization in Europe, Commonwealth of Independent States, Africa, the Middle East, the Americas, Asia, and Australia.

• Siemens plans to accelerate its transformation into a ONE Tech Company focusing on electrification, automation, and digitalization, which could drive higher profitable growth and enhance revenue opportunities.
  
• The company is investing in foundational technologies, optimizing processes, and increasing collaborations to boost efficiency and innovation, potentially leading to higher margins and profitability.
  
• Siemens' commitment to digital business expansion, including a strategic acquisition of Altair Engineering, is expected to strengthen its industrial software offerings, contributing to future revenue growth.
  
• Siemens continues its transition to Software as a Service (SaaS), with a focus on sustaining annual recurring revenue growth, likely improving earnings stability and enhancing revenue quality.
  
• Strong order growth, particularly in sectors like Smart Infrastructure and Mobility, with a significant backlog provides visibility for sustained revenue growth in fiscal 2025 and beyond, supporting earnings potential.

Siemens Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Siemens's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.8% today to 11.5% in 3 years time.
• Analysts expect earnings to reach €10.4 billion (and earnings per share of €13.31) by about December 2027, up from €8.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €12.3 billion in earnings, and the most bearish expecting €9.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.1x on those 2027 earnings, down from 18.6x today. This future PE is greater than the current PE for the GB Industrials industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.26%, as per the Simply Wall St company report.

Siemens Future Earnings Per Share Growth

Risks

• Macroeconomic uncertainties, such as geopolitical tensions, inflation, and new tariffs, may affect Siemens' revenue and profit margins, particularly in export-driven regions like Europe and Germany.
  
• Ongoing destocking and overcapacities, especially in China, have already impacted global manufacturing and may continue to weigh on Siemens' automation and industrial sectors, affecting revenue growth.
  
• The competitive landscape in China is intensifying and may limit Siemens' market share and revenue growth potential if local competitors gain an advantage.
  
• The transition to Software as a Service (SaaS) in the Digital Industries segment, while aiming for long-term benefits, involves upfront costs and risks that could impact short-term profit margins.
  
• Adjustments related to workforce reskilling and regional investments could increase operating costs in the short term, impacting overall profitability.

Valuation

• The analysts have a consensus price target of €207.12 for Siemens 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 €230.0, and the most bearish reporting a price target of just €130.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €90.4 billion, earnings will come to €10.4 billion, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 5.3%.
• Given the current share price of €194.72, the analyst's price target of €207.12 is 6.0% 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.