Energy Transition Will Erode Oil Demand And Margins

Key Takeaways

• The global energy shift and rapid advances in renewables threaten core product demand, putting sustained pressure on Tenaris's long-term growth and earnings prospects.
  
• Rising ESG scrutiny, volatile input costs, and fierce competition are set to compress margins, destabilize revenues, and undermine long-term profitability.
  
• Investments in premium products, automation, and regional service expansion position Tenaris to maintain strong margins and revenue stability despite cyclical slowdowns in core markets.

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.

• The accelerating global energy transition and growing adoption of renewables are set to permanently erode the demand for oil and gas infrastructure, undermining Tenaris's long-term sales growth as the world's hydrocarbon reliance declines, which will put pressure on future revenues and market size.
  
• Technological advances in alternative energy such as battery storage and green hydrogen threaten to rapidly displace fossil fuels from the energy mix, creating a structural headwind for demand in Tenaris's core OCTG and pipeline products, likely leading to a prolonged decline in addressable market and reduced earnings potential.
  
• Intensifying ESG regulations and investor scrutiny on high-emission supply chains will force oil and gas operators-Tenaris's principal customers-to scale back capital expenditure on new drilling, increasing compliance costs for Tenaris itself while further compressing net margins as the company faces higher barriers to maintaining its current profitability.
  
• Volatility in steel and other raw material input costs looks increasingly difficult to pass through to customers in a softening market; combined with fierce price competition from low-cost Asian manufacturers, this is likely to create sustained margin pressure and drive down Tenaris's net income over time.
  
• With new oil and gas field development facing long-term decline and oil majors consolidating supplier networks for greater bargaining power, Tenaris is exposed to chronic overcapacity and cyclical swings, leading to unpredictable revenues and a depressed outlook for free cash flow and long-term earnings resilience.

Tenaris Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Tenaris compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Tenaris's revenue will decrease by 3.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 17.0% today to 12.5% in 3 years time.
• The bearish analysts expect earnings to reach $1.3 billion (and earnings per share of $1.18) by about September 2028, down from $2.0 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 bearish analyst cohort, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, up from 9.2x today. This future PE is lower than the current PE for the US Energy Services industry at 14.3x.
• Analysts expect the number of shares outstanding to decline by 4.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

Tenaris Future Earnings Per Share Growth

Risks

• Tenaris is building an important project backlog into 2026, particularly in offshore deepwater developments and line pipe projects in regions like Suriname, Brazil, and Nigeria, which supports strong forward revenue visibility and may cushion any decline in core markets.
  
• The company is positioned to benefit from rising domestic OCTG prices in the U.S. due to higher tariffs on imports and a robust local manufacturing footprint, which could lead to both higher realized average selling prices and sustained EBITDA margins over time.
  
• Strategic investments in high-value premium products, local service capabilities (especially in fast-growing basins like Guyana-Suriname and Vaca Muerta), and vertical integration – including ongoing automation initiatives – could strengthen market share and improve both revenue stability and net margins.
  
• Despite regional slowdowns in North America and South America, Tenaris is seeing resilience and anticipated growth in drilling for natural gas, particularly in areas such as the Haynesville and Appalachia, as well as in the Middle East and emerging LNG hubs, all of which could help offset short-term cyclicality and support top-line growth.
  
• Recent accretive acquisitions and a strong net cash position enable Tenaris to consider further consolidation or supply chain expansions, increasing its ability to invest in capacity or technology that could protect or grow earnings if the energy cycle turns positive again.

Valuation

• The assumed bearish price target for Tenaris is €13.28, which represents the lowest 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 more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €21.05, and the most bearish reporting a price target of just €13.28.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $10.5 billion, earnings will come to $1.3 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 €15.12, the bearish analyst price target of €13.28 is 13.9% lower.
• 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.