EV Adoption Will Drive Demand For Advanced Lightweight Solutions

Key Takeaways

• Profitability is poised to outpace expectations, supported by operational efficiency, cost initiatives, and a robust order backlog, especially in North America.
  
• Leadership in lightweight EV components and rising outsourcing enhance revenue growth, competitive positioning, and margin expansion amid ongoing industry electrification.
  
• Structural declines in core markets, competitive pressures in Asia, high capital needs, and industry shifts threaten revenue growth, profitability, and long-term market position.

Catalysts

Designs, develops, and manufactures metal components for the automotive industry in Western Europe, Eastern Europe, Mercosur, North America, and Asia.

• While analyst consensus expects the Fenix Plan to deliver a run-rate North America EBITDA margin of 8 percent by year-end 2025, current trends suggest targets could be significantly exceeded, as the Q1 2025 margin uplift of 190 basis points year-on-year was delivered despite weak volumes and before the full impact of restructuring and cost initiatives; this scenario could see NAFTA margins exceeding 10 percent and provide substantial upside to EBITDA and earnings forecasts.
  
• Analysts broadly recognize Gestamp's multi-year €51.1 billion backlog as providing revenue visibility, but growing cross-border programs with Chinese OEMs outside of China-as signaled by Gestamp's increasing RFQs and partnerships-indicate the order pipeline could expand well beyond current estimates, supporting an uplift in both medium-term revenue growth and the company's market share in the EV value chain.
  
• As the global transition to electric vehicles accelerates, Gestamp's leadership in lightweighting technology and high-margin advanced components positions it to capture a disproportionate share of EV content per vehicle, driving structural increases in group EBITDA margins and recurring earnings.
  
• Intensifying outsourcing by carmakers, coupled with Gestamp's strengthened position as a one-stop, engineering-driven supplier, is expected to increase pricing power in critical components and allow above-market improvements in net margins as OEMs rationalize supplier bases.
  
• Gestamp's disciplined automation investments and strict capital allocation are already driving measurable cost savings and operational flexibility, which-combined with the company's strong liquidity and declining net leverage ratio-will likely enable sustained free cash flow and support shareholder returns even in less favorable auto production cycles.

Gestamp Automoción Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Gestamp Automoción compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Gestamp Automoción's revenue will grow by 5.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.3% today to 3.4% in 3 years time.
• The bullish analysts expect earnings to reach €478.8 million (and earnings per share of €0.83) by about July 2028, up from €160.3 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 7.3x on those 2028 earnings, down from 11.3x today. This future PE is lower than the current PE for the GB Auto Components industry at 11.1x.
• Analysts expect the number of shares outstanding to decline by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.32%, as per the Simply Wall St company report.

Gestamp Automoción Future Earnings Per Share Growth

Risks

• Structural declines in automotive production volumes in Western Europe and North America, as evidenced by Gestamp's revenue decreases of 6.6% in Western Europe and 2.8% in NAFTA, combined with external forecasts of a multi-year reduction in light vehicle output, threaten to suppress future revenues and put sustained pressure on operating margins.
  
• The company's underperformance in Asia, primarily driven by a highly competitive Chinese market and a strategic dependence on expanding relationships with Chinese OEMs, risks insufficient revenue growth in this critical region, potentially impairing earnings and long-term top-line expansion.
  
• Ongoing high capital intensity and the need for continual investment in restructuring efforts (such as the Phoenix Plan) as well as automation-highlighted by recurring negative free cash flow in Q1 2025 and expectations of further capex-jeopardize Gestamp's ability to generate consistent free cash flow and could limit future profitability.
  
• Trends toward vehicle electrification and greater use of lightweight materials, coupled with flat or declining profitability in Gestamp's steel-based core product lines, expose the company to market share erosion and margin compression if R&D in advanced technologies does not accelerate.
  
• Heightened ESG and regulatory demands, combined with persistent pricing pressure from OEM consolidation, may require increased compliance and investment, further squeezing net margins and potentially diminishing Gestamp's competitive position in the long term.

Valuation

• The assumed bullish price target for Gestamp Automoción is €4.17, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Gestamp Automoción'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 €4.17, and the most bearish reporting a price target of just €2.2.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €14.1 billion, earnings will come to €478.8 million, and it would be trading on a PE ratio of 7.3x, assuming you use a discount rate of 14.3%.
• Given the current share price of €3.19, the bullish analyst price target of €4.17 is 23.5% 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.