Global Decarbonization Will Weaken Fossil Reliance But Elevate Renewables

Key Takeaways

• Heavy reliance on traditional engine technologies exposes Wärtsilä to risks from shifting regulations and customer preferences toward cleaner alternatives.
  
• Lagging adaptation to new clean technologies and global disruptions may erode market share, increase costs, and pressure long-term profitability.
  
• Demand for decarbonization, renewable energy, and digitalized solutions drives robust equipment orders, recurring revenue, and strong margin expansion for Wärtsilä.

Catalysts

Offers technologies and lifecycle solutions for the marine and energy markets worldwide.

• Investors may be overestimating Wärtsilä's exposure to long-term demand growth from global decarbonization and stricter emissions regulations, as a significant portion of the company's portfolio still relies on traditional engine technologies; this creates the risk of customer transitions away from fossil-fuel-based solutions, potentially resulting in slower revenue growth and pressure on earnings as regulations tighten further.
  
• Continued acceleration of the energy transition toward renewables and intermittent power sources may reduce the long-term demand for Wärtsilä's core engine power plants, as future investments shift more heavily toward pure renewables and battery storage, limiting the expansion of high-margin service contracts and thus net margin stability.
  
• Heightened geopolitical uncertainty, de-globalization, and global trade tensions could disrupt Wärtsilä's supply chains and project pipelines, introducing operational inefficiencies and increased costs that may negatively impact operating margins and future earnings.
  
• Slower adaptation compared to competitors in next-generation clean technologies (such as hydrogen or full electrification) exposes Wärtsilä to the risk of losing market share, resulting in lower-than-expected top-line revenue growth if the market pivots faster toward new solutions.
  
• Rapid increase in industry-wide R&D requirements for decarbonization and digitalization may force Wärtsilä to allocate more capital expenditure than anticipated, threatening to dilute returns on invested capital and suppress long-term net profit growth.

Wärtsilä Oyj Abp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wärtsilä Oyj Abp's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.2% today to 8.4% in 3 years time.
• Analysts expect earnings to reach €694.1 million (and earnings per share of €1.19) by about July 2028, up from €561.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €815 million in earnings, and the most bearish expecting €580.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, down from 24.6x today. This future PE is lower than the current PE for the GB Machinery industry at 22.5x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.84%, as per the Simply Wall St company report.

Wärtsilä Oyj Abp Future Earnings Per Share Growth

Risks

• The global drive toward decarbonization and stricter emissions regulations supports strong, long-term demand for Wärtsilä's alternative fuel-capable engines, hybrid systems, and marine carbon capture solutions-securing increased equipment orders and a robust pipeline, which should favorably impact order intake and revenue over the coming years.
  
• Sustained investment in renewable energy, balancing power, and data centers drives expanding opportunities for Engine Power Plants and related service contracts, with recent record-high energy order intake and a growing backlog underpinning future net sales and recurring service revenue growth.
  
• Rapid growth in Wärtsilä's service agreements-evidenced by a 48% YoY order intake increase and over 30% of the installed base under agreement, with high renewal rates-provides increasing, high-margin recurring earnings and margin stability through economic cycles.
  
• Wärtsilä's strong innovation in lifecycle digitalization, predictive maintenance, and value-added "Smart Marine" and "Smart Energy" solutions enhances its competitive advantage and enables margin expansion, supporting both top-line and bottom-line growth.
  
• The company's ability to pass through risks such as tariffs and its significant investments in manufacturing and R&D position it to capitalize on positive secular trends (e.g., global fleet renewal, energy transition, data center expansion), supporting sustained improvement in operating margins and long-term earnings visibility.

Valuation

• The analysts have a consensus price target of €19.312 for Wärtsilä Oyj Abp 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 €26.0, and the most bearish reporting a price target of just €11.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €8.2 billion, earnings will come to €694.1 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of €23.48, the analyst price target of €19.31 is 21.6% 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.