Global Electrification And IoT Will Spark Infrastructure Modernization

Key Takeaways

• Strong pricing power, rapid data center growth, and digital leadership are driving significant margin expansion and robust, recurring revenue streams across regions.
  
• Advances in supply chain efficiency and manufacturing optimization are boosting free cash flow, enabling aggressive acquisitions and compounding future earnings potential.
  
• Heavy reliance on stagnant European markets, concentrated North American growth, supply chain challenges, slow digital adoption, and acquisition execution risks threaten long-term revenue and earnings stability.

Catalysts

Manufactures, distributes, and sells electrical and digital building infrastructures in Europe, North and Central America, and internationally.

• Analyst consensus expects sustained double-digit data center growth, but Legrand's order book and management outlook now indicate 15 to 20 percent growth for 2025, significantly above prior projections, with capacity expansions doubling annually through 2025-this is likely to produce major upside for both revenue and operating margins.
  
• Analyst consensus sees pricing power maintaining margin stability amidst tariffs, but Legrand has already demonstrated near zero volume impact from aggressive, multi-wave price increases, signaling even greater potential for net margin expansion and profit resilience than consensus believes.
  
• Urbanization and electrification in emerging markets are poised to deliver structural, above-market top-line growth for Legrand, especially as sales in India and the Middle East accelerate and as recovery in China and Brazil eventually resumes, supporting robust, recurring revenue streams.
  
• Legrand's leadership in smart building and IoT solutions positions it to capture accelerating demand for digital and energy-efficient infrastructure, allowing for premium pricing and outsized contribution to margin expansion and overall earnings growth over the next decade.
  
• Rapid progress in supply chain digitization, automation, and global manufacturing optimization is driving superior operating leverage and free cash flow conversion, building a cash-rich foundation for outsized M&A activity and further compounding future earnings.

Legrand Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Legrand compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Legrand's revenue will grow by 8.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 13.3% today to 14.1% in 3 years time.
• The bullish analysts expect earnings to reach €1.6 billion (and earnings per share of €6.14) by about July 2028, up from €1.2 billion 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 28.9x on those 2028 earnings, up from 27.4x today. This future PE is greater than the current PE for the GB Electrical 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 8.28%, as per the Simply Wall St company report.

Legrand Future Earnings Per Share Growth

Risks

• Legrand's significant reliance on mature, slow-growth European markets, where first quarter sales were flat and no recovery is expected before late 2025, exposes the company to long-term top-line revenue stagnation as market saturation persists.
  
• The high-margin growth in North America is concentrated almost entirely in the data center segment, while the rest of the business remains slightly down; a slowdown in data center investment or a shift in industry priorities could therefore create material risks to revenue growth and earnings.
  
• Legrand's ongoing exposure to supply chain risks-including import tariffs, geopolitical volatility, and increased input and labor costs-not only raises operating expenses but could also compress net margins and reduce earnings, especially as mitigation via price increases faces limits in customer acceptance and market elasticity.
  
• The company's slower pace of digital transformation and relatively limited investment into smart home and IoT product lines, combined with broader industry shifts towards open-source and more interoperable solutions, threatens Legrand's future market share and revenue as legacy product offerings risk commoditization.
  
• Legrand's strategy of acquisition-driven growth introduces persistent integration and execution risks; failure to realize expected synergies or overpaying for targets-especially in a volatile geopolitical and regulatory landscape-could lead to goodwill write-downs and have a negative impact on reported earnings.

Valuation

• The assumed bullish price target for Legrand is €140.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Legrand'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 €140.0, and the most bearish reporting a price target of just €82.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €11.4 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 28.9x, assuming you use a discount rate of 8.3%.
• Given the current share price of €123.6, the bullish analyst price target of €140.0 is 11.7% 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.