EMEA Price Pressure And US Backlog Will Shape Energy Transition

Key Takeaways

• Persistent weak demand and intense price competition in key segments are eroding margins and threatening both long-term revenue and earnings stability.
  
• Ongoing regulatory uncertainty and global trade risks could undermine growth prospects and put further pressure on recent valuation gains.
  
• Technological innovation, successful cost controls, and strategic diversification position SMA to capitalize on energy storage trends and maintain growth despite shifting market and regulatory dynamics.

Catalysts

Develops, produces, and sells PV and battery inverters, transformers, chokes, monitoring systems for PV systems, and charging solutions for electric vehicles in Germany and internationally.

• Concerns about further deterioration and lack of recovery in the Home & Business Solutions (HBS) segment, driven by persistent weak demand, inventory destocking, and absence of new subsidy or regulatory support in key European markets, suggest investors may be overestimating long-term growth, which threatens both revenue and profitability.
  
• Heightened price competition from Asian inverter manufacturers in EMEA, especially in the premium/pv-only segment of HBS, is causing significant margin compression and undermining net margins, as SMA is forced to contemplate price cuts and additional restructuring.
  
• Weak order intake in the Large Scale division, particularly amid U.S. regulatory and tariff uncertainty, puts into question the sustainability of the current robust backlog and risks a slowdown in revenue and earnings growth once current contracts are fulfilled.
  
• Potential for further inventory write-downs and additional restructuring one-offs in HBS, unless market conditions improve quickly, will weigh on near-to-mid-term EBIT and add volatility to earnings, as management explicitly flagged the likelihood of more such charges if business does not pick up.
  
• Rising global trade tensions, ongoing tariff risks (especially in the U.S.), and the threat of higher-for-longer interest rates present operational headwinds that could inhibit SMA's ability to capitalize on positive energy transition trends, potentially suppressing top-line growth and making recent higher valuation multiples vulnerable.

SMA Solar Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SMA Solar Technology's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.4% today to 6.8% in 3 years time.
• Analysts expect earnings to reach €106.3 million (and earnings per share of €2.15) by about August 2028, up from €-140.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.3x on those 2028 earnings, up from -5.1x today. This future PE is lower than the current PE for the GB Semiconductor industry at 14.8x.
• 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 8.87%, as per the Simply Wall St company report.

SMA Solar Technology Future Earnings Per Share Growth

Risks

• Resilient performance and ongoing growth in the Large Scale segment, with strong profitability, robust order backlog of €802 million, and an expectation that sales could approach €1 billion in coming years, mitigates revenue risk and supports future earnings.
  
• Management's successful execution of cost reduction and restructuring programs-already achieving more than half of a targeted €150-200 million EBIT improvement-demonstrates a proactive approach to preserving or enhancing net margins in a tough environment.
  
• Technological leadership and continued product innovation (e.g., Sunny Island X, silicon carbide-based Sunny Central Storage UP-S) enable SMA to meet evolving demand in energy storage and grid stability, expanding addressable markets and providing pricing power to help sustain or grow gross margins.
  
• Increasing share of battery and hybrid inverter projects (over 50% of Large Scale projects at group level), and the global shift toward storage solutions in both Europe and the US, positions SMA to benefit from secular trends in energy storage, supporting revenue growth even as PV-only markets soften.
  
• Strategic flexibility in geographical operations (e.g., increased local content in the US, ability to adjust production and reduce tariff exposure) and diversification across divisions allow SMA to respond quickly to market or regulatory changes, ensuring stable revenue streams and mitigating potential earnings volatility.

Valuation

• The analysts have a consensus price target of €17.8 for SMA Solar Technology 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 €22.0, and the most bearish reporting a price target of just €15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.6 billion, earnings will come to €106.3 million, and it would be trading on a PE ratio of 7.3x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of €20.7, the analyst price target of €17.8 is 16.3% 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.