Flexible Supply Chain Will Open US Port Equipment Opportunities

Key Takeaways

• Konecranes' flexible supply chain and U.S. expansion plans give it a competitive edge and potential revenue growth.
  
• Strategic price increases and service segment expansion aim to enhance margins and profitability across various business units.
  
• Geopolitical tensions and U.S. tariffs may strain Konecranes' profitability and decision-making, while APAC order declines pose regional market challenges.

Catalysts

Manufactures, sells, and services material handling products in Europe, the Middle East, Africa, the Americas, the Asia-Pacific, and internationally.

• Konecranes has a flexible supply chain for port equipment, allowing it to source from various geographic locations including China, India, and Eastern Europe, and plans to potentially expand its supply network in the U.S. This flexibility gives it an advantage over competitors, especially Chinese manufacturers, and could drive future revenue growth.
  
• The company has implemented price increases to compensate for tariff impacts in the U.S., which are expected to contribute positively to operating margins and potentially improve net margins going forward.
  
• Konecranes is focused on expanding its service segment, which drives higher-margin revenue through both organic growth and strategic bolt-on acquisitions. This should bolster earnings and improve profitability in the Industrial Service business.
  
• The Port Solutions business is experiencing strong order growth, particularly in short-cycle products and services which can be delivered within the year. This indicates potential for increased sales and improved EBITDA margins.
  
• Volume growth and positive operating leverage from higher sales, despite inflationary pressures, are expected to drive earnings growth. The company plans to optimize its Industrial Equipment segment through cost efficiencies and strategic initiatives, improving net earnings.

Konecranes Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Konecranes's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.9% today to 9.8% in 3 years time.
• Analysts expect earnings to reach €440.4 million (and earnings per share of €5.44) by about May 2028, up from €382.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, up from 12.2x today. This future PE is lower than the current PE for the GB Machinery industry at 17.3x.
• 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 6.72%, as per the Simply Wall St company report.

Konecranes Future Earnings Per Share Growth

Risks

• Geopolitical and trade policy tensions, including tariff threats, could negatively impact customer decision-making and increase uncertainty, potentially affecting Konecranes' future revenues.
  
• The decline in profitability within Industrial Equipment due to lower productivity and a weaker product mix could strain net margins and earnings if not addressed.
  
• Exposure to U.S. tariffs, particularly in internal trade flows from Europe to the U.S., could impact Konecranes' cost structure and pricing power, affecting net margins and overall profitability.
  
• Hesitation in decision-making among U.S. customers due to high interest rates and tariffs may create volatility in order intake, impacting revenue and growth prospects in this key market.
  
• A decrease in order intake within the APAC region could indicate regional market challenges, potentially impacting future revenues and market share growth.

Valuation

• The analysts have a consensus price target of €70.0 for Konecranes based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.5 billion, earnings will come to €440.4 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of €58.8, the analyst price target of €70.0 is 16.0% 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.