Electrification And Decarbonization Will Fuel Global Wind Markets

Key Takeaways

• Leadership in onshore and offshore projects, robust service backlog, and premium turbine technologies are driving superior margins, revenue stability, and sustained global market dominance.
  
• Industry consolidation and demand for higher-quality renewable solutions are enhancing pricing power, contract quality, and long-term earnings visibility for Vestas.
  
• Rising costs, subsidy uncertainty, and fierce price competition are harming margins, while operational challenges and sustained investment needs threaten cash flow and overall profitability.

Catalysts

Engages in the design, manufacture, installation, and services of wind turbines the United States, Denmark, and internationally.

• Analyst consensus acknowledges the significant ramp-up and pipeline in onshore and offshore projects, but it may understate the true earnings potential from Vestas' growing global market share, which has now reached 30% and is focused on value over volume. This expanding leadership position, combined with robust pricing power in both established and emerging markets, is poised to drive both revenue and net margin expansion beyond current expectations.
  
• While analyst consensus expects margin improvement from the Service segment recovery plan with an EBIT margin target of 25%, there is potential for outperformance as Vestas' expanded service backlog now exceeds 157 gigawatts under contract and average contract duration holds above 11 years, setting the stage for a step-change in recurring earnings stability and higher service margins over the medium to long term.
  
• Vestas is uniquely positioned to benefit from the accelerated electrification of transportation, industry, and heating worldwide, as utilities and governments seek large-scale, reliable renewable solutions; this should support an outsized increase in long-term demand for large turbine orders, driving sustained top-line growth well into the 2030s.
  
• Breakthroughs in turbine technology-exemplified by the rapid market adoption of the V236-15 megawatt offshore model and an average selling price per megawatt that increased by over 5% quarter-on-quarter-suggest a structural shift to premium pricing and improved gross margins as the next generation of turbines win a larger share of major global projects.
  
• Industry consolidation and developers' focus on higher-quality, value-creating projects are reducing competitive fragmentation, enabling Vestas to command better pricing, increase operational leverage, and lock in longer-term, higher-margin contracts, thereby improving both revenue visibility and long-term profitability.

Vestas Wind Systems Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Vestas Wind Systems compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Vestas Wind Systems's revenue will grow by 12.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.2% today to 7.4% in 3 years time.
• The bullish analysts expect earnings to reach €1.9 billion (and earnings per share of €1.92) by about August 2028, up from €572.0 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 bullish analyst cohort, the company would need to trade at a PE ratio of 16.7x on those 2028 earnings, down from 27.2x today. This future PE is lower than the current PE for the GB Electrical industry at 22.1x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.16%, as per the Simply Wall St company report.

Vestas Wind Systems Future Earnings Per Share Growth

Risks

• Increasing trade tensions and the imposition of tariffs, particularly impacting the U.S. market, are driving higher input costs and causing delays in project decision-making, which could negatively affect Vestas's revenue growth and compress its net margins in core regions.
  
• Persistent uncertainty and potential reduction in long-term government support mechanisms such as the U.S. Inflation Reduction Act and European renewable energy subsidies risk a slowdown in new orders, challenging Vestas's ability to convert its project pipeline into realized sales and thus impacting long-term revenue and earnings.
  
• Intensifying price competition, especially from Chinese manufacturers with lower costs, is exerting structural pressure on turbine pricing and margins, threatening Vestas's market share and potentially eroding profitability even as it prioritizes "value over volume."
  
• Continued high warranty and maintenance expenses, alongside significant costs for manufacturing ramp-ups and repairs, especially with the shift to larger and more complex turbines, increase operational risks and may limit improvements in net earnings despite topline growth.
  
• The need to undertake sustained high R&D and capital investments to keep pace with evolving technology and to maintain competitiveness is weighing on free cash flow and could strain the capital structure if revenue expansion does not keep up with investment outlays.

Valuation

• The assumed bullish price target for Vestas Wind Systems is DKK195.12, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Vestas Wind Systems's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of DKK195.12, and the most bearish reporting a price target of just DKK60.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €25.9 billion, earnings will come to €1.9 billion, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 7.2%.
• Given the current share price of DKK116.25, the bullish analyst price target of DKK195.12 is 40.4% 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.