Circular Economy Trends And Geopolitical Tensions Will Cripple Demand

Key Takeaways

• Growing sustainability trends and demographic shifts threaten to restrict demand for new home appliances, slowing De'Longhi's sales growth and market expansion.
  
• Increasing cost pressures, competition, and overreliance on coffee appliances are undermining profitability and exposing the company to significant margin and concentration risks.
  
• Strategic diversification, premium innovation, and strong global demand are underpinning resilient growth, pricing power, and margin strength despite challenging external environments.

Catalysts

Produces and distributes coffee machines, food preparation and cooking machines, air conditioning and heating, domestic cleaning and ironing, and home care products.

• Global shifts toward sustainability and the circular economy are likely to dampen long-term demand for new home appliances, as more consumers opt for repair, refurbishment, and second-hand options. As a result, De'Longhi's revenue growth could slow materially over the coming years as fewer customers upgrade or replace existing products.
  
• Demographic headwinds in developed markets, notably an aging population and declining household formation, are set to reduce the company's core addressable market. This means long-term sales growth is likely to decelerate just as De'Longhi increases investments in new products and marketing.
  
• Intensifying geopolitical fragmentation and protectionist tariffs in key regions are raising production and shipping costs, with the company confirming a roughly €50 million negative net impact for the full year 2025 and further uncertainty for 2026. Persistent global supply chain instability threatens to erode De'Longhi's net margins and could undo recent gains in operational efficiency.
  
• Overreliance on the coffee appliance category exposes De'Longhi to concentration risk. Should shifting consumer tastes, the rise of second-hand appliances, or aggressive competition in both Asia (notably China) and North America diminish demand, overall revenue and profitability could deteriorate abruptly with limited offset from other business lines.
  
• The small appliance industry is becoming increasingly commoditized, with lower-cost Asian competitors and ongoing promotional intensity putting continuous pressure on prices. As De'Longhi faces an inability to raise prices in most markets outside the U.S., gross margins are likely to compress further in the medium
• to long-term, reducing earnings growth and return on invested capital.

De'Longhi Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on De'Longhi compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming De'Longhi's revenue will grow by 4.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 8.8% today to 8.5% in 3 years time.
• The bearish analysts expect earnings to reach €352.6 million (and earnings per share of €nan) by about August 2028, up from €321.1 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 bearish analyst cohort, the company would need to trade at a PE ratio of 18.1x on those 2028 earnings, up from 14.1x today. This future PE is greater than the current PE for the GB Consumer Durables industry at 14.1x.
• Analysts expect the number of shares outstanding to grow by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.51%, as per the Simply Wall St company report.

De'Longhi Future Earnings Per Share Growth

Risks

• Robust revenue growth across both divisions, especially in the Professional division with pro forma growth over 20 percent and record EBITDA margins above 25 percent, suggests that core categories are resilient and could drive continued earnings and margin strength in the long term.
  
• The company's ability to increase prices in the key US market to offset tariffs-reporting around a 10 percent price increase with positive sell-out trends-demonstrates pricing power and mitigates risks of severe net margin compression from external cost shocks.
  
• Strong performance and double-digit growth in emerging strategic geographies such as China and Asia Pacific indicates De'Longhi is benefiting from, and may continue to benefit from, the rising global middle class and shifting consumer preferences, supporting long-term revenue expansion.
  
• Sustained investment in product innovation, successful new launches in premium coffee and kitchen appliances, and high-impact marketing campaigns (including the Brad Pitt campaign) are reinforcing brand equity, suggesting ongoing capability to drive top-line growth and premium pricing.
  
• Strategic diversification both geographically and across product categories (Household and Professional divisions, acquisitions like La Marzocco, NutriBullet, and Eversys) is reducing earnings volatility and positioning De'Longhi for more resilient revenue and cash flow performance across market cycles.

Valuation

• The assumed bearish price target for De'Longhi is €30.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of De'Longhi's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €47.7, and the most bearish reporting a price target of just €30.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €4.1 billion, earnings will come to €352.6 million, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 11.5%.
  
• Given the current share price of €29.92, the bearish analyst price target of €30.0 is 0.3% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that the bearish analysts 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.