Low-Emission Vehicle Adoption Will Drive Clean Mobility Growth

Key Takeaways

• Strong operational leverage, efficiency gains, and potential divestment of Defence business are set to boost profitability and unlock significant hidden value.
  
• Strategic partnerships and advanced digitalization are positioning Iveco Group as a leader in clean, connected mobility, driving sustained high-margin revenue growth.
  
• Heavy dependence on traditional markets, lagging electrification, and potential divestments risk eroding profitability as competition and regulatory pressures mount.

Catalysts

Engages in the design, production, marketing, sale, servicing, and financing of trucks, commercial vehicles, buses and specialty vehicles, combustion engines, alternative propulsion systems, transmissions, axles, engines, alternative propulsion systems, construction equipment, marine, and power generation applications in Europe, South America, North America, and internationally.

• Analysts broadly agree that Iveco Group's efficiency and cost-cutting program will help margins, but with the production reset completed, normalization of volumes and significant cost absorption improvement in the coming quarters could lead to a step-change in profitability and net margins, well above consensus expectations as the operating leverage materializes.
  
• Analyst consensus expects revenue growth from new truck launches and improved order intake, but the surge in book-to-bill ratios across all segments and material outperformance in Latin America signal a much sharper and sustained top-line recovery, surpassing guidance and driving earnings well above market forecasts.
  
• The imminent spin-off or potential sale of the Defence business-amid unprecedented order backlog and strong strategic interest-could unlock significant value, both by surfacing hidden asset value and by providing capital for strategic reinvestment or shareholder returns, greatly enhancing group-level earnings and potentially leading to re-rating.
  
• Partnerships with Stellantis and DLL are accelerating Iveco Group's transformation into a full-spectrum provider of electric and clean mobility solutions, positioning the company to capture outsized growth as the adoption of low
• and zero-emission vehicles and advanced mobility platforms accelerates across key markets, driving long-term revenue expansion and recurring high-margin service revenues.
  
• The expansion and rapid take-up of the GATE joint venture, coupled with advanced digitalization and connectivity strategies, equip Iveco Group to become a leader in smart, connected vehicle ecosystems-a shift expected to deliver long-term improvements in net margins and recurring revenue through digital services, predictive maintenance, and total cost of ownership solutions.

Iveco Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Iveco Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Iveco Group's revenue will grow by 6.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.9% today to 4.7% in 3 years time.
• The bullish analysts expect earnings to reach €845.3 million (and earnings per share of €3.13) by about July 2028, up from €431.0 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 9.3x on those 2028 earnings, down from 11.9x today. This future PE is lower than the current PE for the IT Machinery industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 1.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.97%, as per the Simply Wall St company report.

Iveco Group Future Earnings Per Share Growth

Risks

• Accelerating transition to zero-emission and electric vehicles may outpace Iveco Group's technology and product pipeline, as indicated by the relatively small and unprofitable volumes in electrified powertrains and ongoing reliance on third-party partnerships, which could erode future revenues and constrain earnings growth if regulatory mandates intensify.
  
• Persistent exposure to mature European markets, which experienced substantial year-over-year volume contractions in trucks and powertrain (down 16% and 19% respectively), combined with tightening local emissions and safety regulations, may cap long-term revenue expansion and put net margins under further pressure as competition intensifies.
  
• The spin-off or potential sale of the profitable Defence division introduces material uncertainty, as Defence net revenues grew 31% year-over-year and delivered an adjusted EBIT margin near 13%; divesting this segment would remove a key earnings stabilizer and may negatively impact future group profitability.
  
• Supply chain constraints, fixed cost absorption challenges during industry downturns, and ongoing market volatility-as evidenced by negative volume/mix effects of 117 million euros and 794 million euros of free cash flow absorption in Q1-may continue to drive earnings and net margin volatility, especially if demand recovery lags or cost inflation remains high.
  
• Intensifying competition from low-cost Asian rivals and rapidly innovating electric vehicle manufacturers could further compress pricing and market share in both traditional and electric vehicle segments, especially since much of Iveco's electrification currently relies on partnerships rather than internal R&D, threatening both revenue growth and long-term profit margins.

Valuation

• The assumed bullish price target for Iveco Group is €20.3, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Iveco Group'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 €20.3, and the most bearish reporting a price target of just €13.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €18.2 billion, earnings will come to €845.3 million, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 15.0%.
• Given the current share price of €19.25, the bullish analyst price target of €20.3 is 5.2% 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.