Photon-counting CT And AI Advancements Will Sustain Future Competitiveness

Key Takeaways

• Photon-counting CT technology and PETNET business expansion are key to revenue growth and improved margins, advancing Siemens Healthineers' market position.
  
• Innovation in Advanced Therapies and Diagnostics segments, alongside Varian integration, drives strong margin expansion and sustained competitive edge.
  
• Global trade tensions, tariff threats, and pricing pressure could impact Siemens Healthineers' revenue and margins, especially in the Varian and Diagnostics segments.

Catalysts

Through its subsidiaries, develops, manufactures, and sells a range of diagnostic and therapeutic products and services to healthcare providers worldwide.

• Growth in the Imaging segment is anticipated to be driven by the continued rollout and adoption of photon-counting CT technology, which is expected to enhance revenue through advanced diagnostic capabilities and attracting new orders.
  
• The combination of Varian and Siemens Healthineers continues to yield strong growth, contributing to margin expansion within the Advanced Therapies sector, likely bolstering future earnings.
  
• The ongoing transformation of the Diagnostics segment, marked by improvement in operational performance, is projected to progressively expand net margins as efficiencies are realized.
  
• Expanding the PETNET business, particularly through acquisitions like the Novartis radiopharmaceuticals business, positions Siemens Healthineers to capitalize on the growing theranostics field, thus supporting revenue growth and potentially improving segment margins.
  
• Continuous innovation, exemplified by new product launches such as low helium MRIs and digital AI-enabled products, is poised to maintain Siemens Healthineers' competitive edge, underpinning stable revenue growth and margin expansion across its product lines.

Siemens Healthineers Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Siemens Healthineers's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 11.9% in 3 years time.
• Analysts expect earnings to reach €3.2 billion (and earnings per share of €2.88) by about March 2028, up from €2.0 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €3.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.1x on those 2028 earnings, down from 29.8x today. This future PE is lower than the current PE for the DE Medical Equipment industry at 29.9x.
• Analysts expect the number of shares outstanding to grow by 0.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.6%, as per the Simply Wall St company report.

Siemens Healthineers Future Earnings Per Share Growth

Risks

• The potential imposition of tariffs from the U.S. on imports from countries like Mexico and Canada could have limited but notable impacts, particularly on the Varian segment due to subassembly operations, impacting revenue and operational margins.
  
• VBP (volume-based procurement) in China poses a risk as it could lead to pricing pressure in the Clinical Chemistry and Immunoassay segments, which are significant parts of the company's IVD business, potentially affecting revenue and profit margins.
  
• The reliance on favorable conditions in China, where revenue is expected to stabilize at a low level, but with declines projected in the first half of fiscal year 2025, could threaten overall revenue growth if adverse conditions persist or worsen.
  
• The ongoing transformation of the Diagnostics business, while showing positive margin improvements, may lead to slower growth if not executed flawlessly, impacting the long-term revenue trajectory.
  
• Uncertainties related to global trade conditions and the potential for a trade war could adversely affect the healthcare industry broadly, including Siemens Healthineers, potentially impacting revenue and ultimately margins.

Valuation

• The analysts have a consensus price target of €62.968 for Siemens Healthineers 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 €69.1, and the most bearish reporting a price target of just €53.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €27.2 billion, earnings will come to €3.2 billion, and it would be trading on a PE ratio of 26.1x, assuming you use a discount rate of 5.6%.
• Given the current share price of €52.8, the analyst price target of €62.97 is 16.1% 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.