Riding The Wave Of Green Innovation Marine Sector Fuels New Growth Horizons

Key Takeaways

• Strategic focus on service value chain and alternative fuels is expected to boost revenue and improve profitability through higher-margin contracts.
  
• Positive marine sector demand and clean energy projects are anticipated to sustain order intake and long-term revenue growth.
  
• Rising protectionism and geopolitical tensions could slow decision-making and affect new order speed, impacting future revenue growth.

Catalysts

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

• Wärtsilä's strategic focus on moving up the service value chain, including increased service order intake and service net sales, is expected to boost revenue and improve profitability as service margins are typically higher than equipment.
  
• Increased activity in alternative fuels and the marine decarbonization transition, including strategic collaborations for ammonia-based ships, is anticipated to drive revenue through new technology offerings and higher-margin contracts.
  
• Positive market sentiment in the marine sector, with rising demand for new vessels and limited shipyard capacity, is expected to sustain order intake levels, thereby supporting future revenue growth.
  
• The strong cash flow generation and improved operating results indicate potential for reinvestment and operational efficiencies, positively impacting net margins and earnings.
  
• Continued development in energy storage and clean energy projects, driven by regulatory support such as the U.S. Inflation Reduction Act, is likely to boost future order intake and contribute to long-term revenue growth.

Wärtsilä Oyj Abp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wärtsilä Oyj Abp's revenue will grow by 9.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 8.1% in 3 years time.
• Analysts expect earnings to reach €657.5 million (and earnings per share of €1.11) by about November 2027, up from €438.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €733 million in earnings, and the most bearish expecting €512.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.0x on those 2027 earnings, down from 23.9x today. This future PE is lower than the current PE for the GB Machinery industry at 24.2x.
• 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 6.12%, as per the Simply Wall St company report.

Wärtsilä Oyj Abp Future Earnings Per Share Growth

Risks

• Rising protectionism and geopolitical tensions could create uncertainties that slow down decision-making and negatively impact the speed of new orders, potentially affecting future revenue growth.
  
• Weak order intake for energy storage in Q3, despite an optimistic outlook for Q4, suggests potential volatility in revenue from this sector due to the timing of orders and the size of incoming contracts.
  
• The Marine segment faces margin pressure due to a mix of equipment and project types, which could lead to fluctuating net margins and earnings despite higher sales.
  
• Local content requirements and import tariffs in the U.S. could impact Wärtsilä's competitiveness and cost structure, potentially leading to lower profitability and affecting net margins.
  
• Equipment orders and deliveries have decreased in comparison to previous periods, especially impacted by the timing of storage orders, which could lead to variability in earnings and net margins.

Valuation

• The analysts have a consensus price target of €17.76 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 €22.5, and the most bearish reporting a price target of just €10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €8.1 billion, earnings will come to €657.5 million, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of €17.74, the analyst's price target of €17.76 is 0.1% 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.