Global Energy Demand And Infrastructure Renewal Will Drive Pipe Orders

Key Takeaways

• Tenaris' entrenched customer base, technical leadership, and advanced digital services provide growth visibility, resilience in downturns, and increasing recurring high-margin revenues overlooked by consensus.
  
• Strong financial flexibility supports accelerated shareholder returns and strategic investments to capture future demand, amplifying earnings regardless of market cycle volatility.
  
• Accelerating energy transition, regulatory scrutiny, and competitive pressures threaten Tenaris's core oil and gas business, undermining revenue growth, margin stability, and long-term market position.

Catalysts

Manufactures and supplies steel pipe products and related services for the energy industry and other industrial applications in North America, South America, Europe, the Middle East and Africa, and the Asia Pacific.

• While analyst consensus expects stable long-term demand due to Tenaris' Rig Direct model and long-term contracts with top shale operators, the customer base is even more resilient than appreciated; most volume is tied to major energy companies with multi-year drilling programs, which suggests Tenaris can maintain or even increase revenue and margin share even in downturns, beyond what consensus models assume.
  
• Analysts broadly agree Tenaris is well-positioned in offshore and deepwater, but this is likely understated-the company's leadership in supplying complete, high-spec tube and coating solutions for the next wave of major FIDs (including West Africa, Australia, and the Middle East) provides exceptional visibility on high-margin backlog growth into 2026 and beyond, accelerating EBITDA outperformance as global energy security and dual-source supply become more strategic.
  
• Global infrastructure overhauls in North America and Europe, driven by stricter safety standards and aging pipelines, are likely to trigger large, sustained orders for advanced, high-integrity pipe solutions, offering years of recurring high-margin revenue as Tenaris' technical leadership and installed local manufacturing lead to significant market share gains.
  
• The integration of advanced digital services and end-to-end pipe management platforms is expected to shift a growing portion of Tenaris' sales to multiyear service agreements, dramatically increasing customer stickiness, recurring revenues, and cash flow stability-an upside overlooked by most forward models.
  
• Tenaris' fortress balance sheet and still-increasing net cash position enable accelerated share repurchases at current depressed valuations, turbocharging EPS growth in the near term, while also allowing rapid, opportunistic investment in new capacity or acquisitions if unexpected regional demand spikes emerge.

Tenaris Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Tenaris compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Tenaris's revenue will grow by 4.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 15.0% today to 15.8% in 3 years time.
• The bullish analysts expect earnings to reach $2.1 billion (and earnings per share of $2.02) by about July 2028, up from $1.8 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 13.0x on those 2028 earnings, up from 11.2x today. This future PE is greater than the current PE for the US Energy Services industry at 12.6x.
• Analysts expect the number of shares outstanding to decline by 4.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.76%, as per the Simply Wall St company report.

Tenaris Future Earnings Per Share Growth

Risks

• Structural decline in global oil demand due to accelerating energy transition and decarbonization efforts poses a long-term risk, as sustained shift to renewables would shrink Tenaris's addressable market and reduce core revenues over time.
  
• Increasing ESG-driven financing limitations and regulatory scrutiny of high-emission sectors may restrict upstream oil and gas investment, resulting in fewer new drilling projects and lower sales volumes for Tenaris, which hits revenue growth and potential earnings.
  
• Heavy exposure to cyclical oil and gas demand-highlighted by recent executive comments about the risk of reduced activity if oil prices remain below $60 per barrel-can cause significant volatility in Tenaris's earnings and make consistent margin performance difficult to achieve in the longer run.
  
• Tenaris's high reliance on large oil and gas customers and long-term contracts makes it vulnerable to renegotiations or customer losses, potentially causing revenue contraction and squeezed net margins due to decreased scale benefits.
  
• Ongoing competitive pressures from low-cost Asian suppliers, technological substitution from alternative pipeline materials for new energy infrastructure, and industry consolidation among customers could erode Tenaris's pricing power and reduce future profitability and market share.

Valuation

• The assumed bullish price target for Tenaris is €21.04, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tenaris'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 €21.04, and the most bearish reporting a price target of just €12.95.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $13.5 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 6.8%.
• Given the current share price of €16.43, the bullish analyst price target of €21.04 is 21.9% 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.