High Order Book And 46TS Engine Will Drive Demand

Key Takeaways

• Strategic decarbonization and advanced engine solutions are poised to enhance profitability and support premium pricing in the Marine sector.
  
• Shifting focus to equipment sales in Energy sector may drive margin improvements, boosting earnings and operational efficiency.
  
• Geopolitical tensions and U.S. tariffs impact Wärtsilä's Energy Storage and Marine sectors, threatening order intake, revenue growth, profitability, and investment decisions.

Catalysts

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

• Wärtsilä's all-time high order book of €8.5 billion, alongside an increase in order intake excluding energy storage, suggests anticipated future growth in net sales, potentially driving revenue higher.
  
• The introduction of a new generation 46TS engine aimed at balancing renewable energy is expected to cater to increased demand in renewable sectors, potentially leading to increased equipment sales and higher revenues.
  
• Continuous growth in the services sector, demonstrated by a 6% increase in service net sales, is expected to improve overall operating leverage and positively impact net margins.
  
• The company's strategic focus on decarbonization initiatives and efficient engine solutions, particularly in the Marine sector, is likely to support margin improvements and higher profitability through premium pricing.
  
• Enhancements in operational efficiency, combined with the anticipated shift from EPC (Engineering, Procurement, and Construction) to equipment sales within the Energy sector, could drive operating margin improvements and boost earnings.

Wärtsilä Oyj Abp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wärtsilä Oyj Abp's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 8.5% in 3 years time.
• Analysts expect earnings to reach €697.2 million (and earnings per share of €1.16) by about May 2028, up from €540.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €787 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, down from 17.7x today. This future PE is greater than the current PE for the GB Machinery industry at 17.3x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.5%, as per the Simply Wall St company report.

Wärtsilä Oyj Abp Future Earnings Per Share Growth

Risks

• Energy Storage order intake decreased by 7% primarily due to lower orders, impacting future revenues and growth prospects in this business segment.
  
• The Marine sector has experienced a decline in the number of vessels ordered during the review period due to growing uncertainty and heightened geopolitical tensions, potentially impacting future revenue streams from newbuild projects.
  
• Uncertainty regarding U.S. tariffs, especially those affecting Chinese-linked ships and components, could lead to delayed investment decisions and increased costs, impacting revenue and limiting margin growth.
  
• Elevated geopolitical uncertainties and changes in global trade landscapes, including potential global economic slowdown, increase the risk of postponements in investment decisions, which could pressure future earnings and operating results.
  
• Energy Storage business in the U.S. is at a standstill due to significant tariffs on Chinese sourced materials, creating challenges for order fulfillment and affecting backlog margins, which could negatively impact profitability and cash flow.

Valuation

• The analysts have a consensus price target of €17.006 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 €22.0, 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 €697.2 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of €16.26, the analyst price target of €17.01 is 4.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.