VWS: Revenue Gains And New Orders Will Shape Renewable Sector Outlook

Key Takeaways

• Policy support in key markets and global grid reforms are driving higher demand, expanding Vestas' growth opportunities and top-line potential.
  
• Offshore manufacturing expansion and improved service operations are expected to boost margins, profitability, and market share as operational efficiencies increase.
  
• Revenue growth and profit margins are under pressure from policy uncertainty, rising costs, fierce price competition, and persistent trade and currency headwinds.

Catalysts

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

• The resolution of U.S. policy uncertainty and renewed government support for wind is driving a significant rebound in order intake, especially in onshore. This sets the stage for robust multi-year demand in the U.S.-a key market-likely boosting revenue growth into the second half of the decade.
  
• Global prioritization of energy security and sustainability, with many governments accelerating grid investments and permitting reforms (e.g., Germany, UK, EU-wide alignment), is expanding Vestas' addressable market and could materially increase order volume and top-line growth.
  
• Vestas' ramp-up and serial manufacturing of next-generation offshore turbines in Poland and project execution for large offshore contracts lay the foundation to capture premium market share and benefit from accelerating offshore wind adoption, expected to support both future revenue and margin improvement as ramp-up costs decline.
  
• The ongoing Service recovery plan-focused on contract repricing, trimming unattractive agreements, and cost control-is anticipated to gradually enhance the high-margin service business, smoothing earnings volatility and improving overall profitability and net margins by 2026 and beyond.
  
• Stabilizing raw material and logistics costs, combined with improved onshore execution and reduced warranty expenses, are already contributing to better gross margins and EBIT. These operational efficiencies are expected to be further leveraged as scale increases, supporting future earnings growth.

Vestas Wind Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vestas Wind Systems's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 5.8% in 3 years time.
• Analysts expect earnings to reach €1.3 billion (and earnings per share of €1.36) by about September 2028, up from €762.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €1.9 billion in earnings, and the most bearish expecting €752.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.2x on those 2028 earnings, down from 21.5x today. This future PE is lower than the current PE for the GB Electrical industry at 21.0x.
• Analysts expect the number of shares outstanding to grow by 5.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

Vestas Wind Systems Future Earnings Per Share Growth

Risks

• Order intake in Q2 declined 44% year-on-year, mainly due to policy uncertainty in the US and the lack of offshore orders, indicating that Vestas's revenue growth is highly sensitive to volatile policy environments and regulatory delays.
  
• Offshore business is currently generating steep ramp-up costs and segment losses, with management acknowledging that ramp-up costs are higher than anticipated and expected to create a substantial drag on EBIT until at least late 2025, directly pressuring margins and net earnings.
  
• Average Selling Price (ASP) per megawatt dropped from €1.24 million to €1.11 million quarter-on-quarter due to mix and competition, reflecting ongoing pricing pressure which, if continued, could erode future gross margins and profitability.
  
• Persistent global trade tensions, tariffs-particularly recent US tariff uncertainty-and currency headwinds are increasing costs and impacting order book value, putting pressure on both revenue and net profitability.
  
• Intensifying price competition in Europe from Chinese wind turbine manufacturers is highlighted as a risk, which could result in further margin compression and threaten Vestas's ability to sustain profitable growth, particularly as governments and developers become price-sensitive.

Valuation

• The analysts have a consensus price target of DKK139.905 for Vestas Wind Systems 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 DKK195.99, and the most bearish reporting a price target of just DKK60.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €23.1 billion, earnings will come to €1.3 billion, and it would be trading on a PE ratio of 20.2x, assuming you use a discount rate of 7.1%.
• Given the current share price of DKK122.7, the analyst price target of DKK139.91 is 12.3% 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.