Global Protectionism And Legacy Shifts Will Erode Margins

Key Takeaways

• Accelerating shifts in automotive technology and insourcing by major customers threaten core revenue streams and highlight the company's slow diversification away from legacy solutions.
  
• Rising input costs, labor expenses, and stricter regulations drive persistent margin compression, cash flow constraints, and reduced earnings growth prospects.
  
• Diversification, successful acquisition integration, strong pricing power, and operational efficiency initiatives are driving margin resilience, stable revenue growth, and a robust order pipeline.

Catalysts

Manufactures and sells gas springs, dampers, electromechanical damper opening systems, vibration isolation products, and industrial components in Europe, the Middle East, Africa, North and South America, the Asia-Pacific, and internationally.

• Intensifying global protectionism and rising tariffs on key inputs such as steel, aluminum, and electric motors threaten to disrupt Stabilus's supply chains, resulting in increased procurement costs that cannot always be fully passed on to customers, eroding gross margins and putting sustained pressure on overall earnings.
  
• The accelerating adoption of electric vehicles reduces demand for traditional automotive components, particularly impacting Stabilus's legacy automotive business; as large OEM customers insource key systems (such as BYD producing Powerise in-house), this could lead to long-term stagnation or decline in core automotive revenues.
  
• A slow pace of portfolio diversification away from conventional gas spring solutions makes Stabilus increasingly vulnerable to shifts in industrial and automotive technology, such as greater substitution by electronic or mechatronic alternatives, exacerbating future revenue risk and compressing net margins over time.
  
• Persistent labor cost inflation and talent scarcity, particularly in high-cost regions, drive up operating expenses while aggressive investments in automation and capacity expansion may constrain free cash flow and raise debt levels, reducing balance sheet flexibility and weakening net earnings growth prospects.
  
• Ongoing pricing pressure in key markets like China, coupled with tightening environmental and safety regulations globally, will drive up compliance and production costs, further compressing EBITDA margins and requiring sustained capital outlays at the expense of profitability.

Stabilus Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Stabilus compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Stabilus's revenue will grow by 1.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.9% today to 5.7% in 3 years time.
• The bearish analysts expect earnings to reach €80.9 million (and earnings per share of €3.26) by about July 2028, up from €65.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, up from 9.6x today. This future PE is lower than the current PE for the GB Machinery industry at 19.4x.
• Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

Stabilus Future Earnings Per Share Growth

Risks

• Stabilus is executing a successful diversification strategy, with industrial automation and machinery now nearly equal to automotive as a share of sales and seeing sustained underlying growth, which is likely to enhance long-term revenue stability even if automotive markets stagnate.
  
• Integration of the Destaco acquisition has been completed ahead of schedule, contributing higher than expected EBIT margins (approaching 20%) and strong free cash flow, suggesting substantial positive impact on group earnings and margin resilience.
  
• The company's track record in passing on tariff and cost increases to customers, aided by robust supplier and customer negotiations, mitigates margin erosion risks from inflation and geopolitical events, helping maintain or improve net margins.
  
• Stabilus continues to win significant business from both domestic and international customers, notably achieving record Powerise tender win rates above 40% and dominant gas spring market share wins, which will underpin robust order backlogs and future revenue growth.
  
• Investment in automation, digitalization, and region-for-region manufacturing is driving operational efficiencies and cost savings, which should support free cash flow growth and margin expansion as these initiatives scale in the coming years.

Valuation

• The assumed bearish price target for Stabilus is €26.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Stabilus's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €57.0, and the most bearish reporting a price target of just €26.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €80.9 million, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of €25.7, the bearish analyst price target of €26.0 is 1.2% higher. The relatively low difference between the current share price and the analyst bearish 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.