Digital Supply Chain And Biomaterials Will Capture Secular Demand

Key Takeaways

• Oulu's ramp-up, efficiency focus, and organizational restructuring are expected to drive superior margins, productivity, and sustained outperformance over industry peers.
  
• Strategic review of forest assets and expanding sustainable materials position Stora Enso for significant valuation gains, flexibility, and market-leading growth in core segments.
  
• Structural decline in core segments, rising input costs, and mounting competition threaten long-term profitability unless successful business model transformation and cost management are achieved.

Catalysts

Provides renewable solutions for the packaging, biomaterials, wooden constructions, and paper industries in Finland and internationally.

• Analyst consensus expects the Oulu consumer board line ramp-up to be margin accretive as it hits full production by 2027, but this could be understated; with exceptionally strong customer feedback on quality, deep integration of pulp and sawmilling, and management's relentless efficiency focus, the Oulu asset could exceed profit expectations through best-in-class margins, adding more than the anticipated €800 million in revenue and sharply lifting group earnings.
  
• While analysts broadly acknowledge operational synergies and cost savings from acquisitions like Junnikkala, the streamlined organizational structure and new 22 P&L-responsible business units are likely to accelerate a performance culture, resulting in sustained productivity gains, lower fixed costs, and margin improvement well ahead of peers rather than just incremental EBIT gains.
  
• Stora Enso's imminent strategic review and potential listing or separation of its €6 billion Swedish forest assets could unlock significant hidden value, realize a step-change in financial flexibility to reinvest in growth, and provide a direct rerating catalyst for the group's sum-of-the-parts valuation and ROCE profile.
  
• With Stora Enso positioned at the forefront of the global shift away from single-use plastics, rapid regulatory changes, and accelerating consumer preference for sustainable materials, the company stands to capture outsized market share and achieve durable top-line growth in paperboard and packaging segments as e-commerce and food-packaging volumes rise.
  
• The company's unique combination of large-scale integrated, cost-competitive European assets, diversified renewable raw material supply, and growing investments in advanced forestry and biomaterials (including lignin-based products and digitalized supply chains) supports structurally higher margins and offers resilience against input cost volatility, positioning Stora Enso to compound EBITDA and net earnings well above current market expectations.

Stora Enso Oyj Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Stora Enso Oyj compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Stora Enso Oyj's revenue will grow by 6.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -1.1% today to 8.6% in 3 years time.
• The bullish analysts expect earnings to reach €957.9 million (and earnings per share of €1.21) by about July 2028, up from €-102.0 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 15.4x on those 2028 earnings, up from -71.7x today. This future PE is lower than the current PE for the GB Forestry industry at 30.9x.
• 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 10.1%, as per the Simply Wall St company report.

Stora Enso Oyj Future Earnings Per Share Growth

Risks

• The ongoing structural decline in Stora Enso's traditional paper and newsprint segments, combined with persistent weak demand and overcapacity in packaging and pulp markets, may continue to suppress revenue growth and lead to underutilized assets, negatively impacting long-term earnings.
  
• Increased global digitalization and the shift to paperless solutions are likely to erode demand for core paper-based products, further pressuring revenues and creating risks of declining profitability in segments that do not transition successfully to new business models.
  
• The potential separation or divestment of Swedish forest assets could reduce the company's stable source of high-margin cash flows and leave the remaining industrial operations with a structurally lower-margin profile, thus elevating risk to future net margins.
  
• Ongoing exposure to high input costs, including persistently elevated wood and fiber prices, coupled with supplier and geopolitical risk, could erode cost competitiveness and compress margins across Stora Enso's core packaging and biomaterials businesses even as they scale.
  
• Intensifying global competition from lower-cost producers, especially in Asia and South America, and tightening environmental regulations and consumer pressures against single-use and fiber-based packaging, may lead to persistent price declines and force costly portfolio adjustments, putting sustained pressure on both revenue and operating margins.

Valuation

• The assumed bullish price target for Stora Enso Oyj is €14.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Stora Enso Oyj'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 €14.0, and the most bearish reporting a price target of just €8.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €11.2 billion, earnings will come to €957.9 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of €9.28, the bullish analyst price target of €14.0 is 33.7% 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.