Rising EMEA And APAC Orders Will Secure Future Success

Key Takeaways

• Strong order intake in EMEA and APAC suggests robust future revenue driven by high demand in key markets.
  
• High demand in the safety division, notably from defense, forecasts increased revenue and gross margin from higher-margin products.
  
• Declining EBIT and expenses, regulatory delays, currency issues, Chinese market challenges, and defense dependence could impact Drägerwerk's revenue and profitability.

Catalysts

Operates as a medical and safety technology company worldwide.

• The significant increase in order intake, especially in EMEA and APAC, and the best Q1 demand since 2020, suggests a strong future pipeline that could drive revenue growth.
  
• The high demand in the safety division, particularly from the defense sector with potential for sales to triple by 2028, indicates a future increase in revenue and gross margin due to higher-margin safety products.
  
• The gradual resolution of the FDA warning letter could alleviate regulatory challenges and support future sales growth, positively impacting revenue and net margins.
  
• Improved operating cash flow and working capital management, despite lower EBIT, could enhance future earnings and potentially net margins through increased operational efficiency.
  
• The positive impact of currency fluctuations and strategic pricing adjustments could mitigate costs, potentially enhancing net margins and financial performance.

Drägerwerk KGaA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Drägerwerk KGaA's revenue will grow by 3.7% annually over the next 3 years.
• Analysts are assuming Drägerwerk KGaA's profit margins will remain the same at 3.7% over the next 3 years.
• Analysts expect earnings to reach €140.3 million (and earnings per share of €8.12) by about May 2028, up from €124.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €172.9 million in earnings, and the most bearish expecting €122 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, up from 9.0x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 26.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.97%, as per the Simply Wall St company report.

Drägerwerk KGaA Future Earnings Per Share Growth

Risks

• Despite achieving slightly positive earnings, Drägerwerk's EBIT of €0.4 million significantly declined from the previous year's €15.1 million due to lower net sales and increased expenses, which could negatively impact net margins and earnings.
  
• The ongoing delay in resolution with the FDA concerning a warning letter poses a risk, as regulatory issues could hamper future revenue and market confidence.
  
• A notable depreciation of the euro affects sales revenue from markets outside the EU, potentially impacting overall revenue and net profits negatively due to unfavorable currency exchange rates.
  
• Persistent challenges in the Chinese market, with only a slow growth forecast, could limit revenue growth from one of the key regions for the medical division.
  
• Dependence on the defense industry and engineered solutions for order growth in the Safety division could present volatility, as shifts in defense spending or policy changes might affect future revenue streams.

Valuation

• The analysts have a consensus price target of €72.6 for Drägerwerk KGaA 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 €96.0, and the most bearish reporting a price target of just €47.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.8 billion, earnings will come to €140.3 million, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €59.6, the analyst price target of €72.6 is 17.9% 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.