North American Laundry And F&B Segments Will Unlock Market Potential

Key Takeaways

• Growth in North American Laundry and Food & Beverage segments expected to boost revenues through recovery and sales expansion.
  
• Strategic pricing, innovation, and increased R&D investments aim to mitigate tariff impacts and enhance market positioning.
  
• Declining order intake, geopolitical issues, tariffs, and increased costs could impact Electrolux Professional's revenue, margins, and competitive position globally.

Catalysts

Engages in the provision of food service, beverage, and laundry products and solutions to restaurants, hotels, healthcare, educational, and other service facilities.

• Continued growth in North American Laundry and Food & Beverage segments is expected to positively impact revenues, confirming recovery and potentially boosting sales growth in these key markets.
  
• Anticipated new product lines and launches in the Laundry segment are expected to drive revenue growth and enhance earnings through innovation and expanded market offerings.
  
• Strategic price increases and mitigating actions are likely to offset the impact of U.S. tariffs, stabilizing net margins and preserving earnings amidst geopolitical tensions.
  
• Improved order intake in Food & Beverage and expectations of normalized sales in European Beverage sectors suggest potential revenue growth and improved earnings from these segments.
  
• Increased R&D investments and marketing efforts are poised to enhance product offerings and brand recognition, potentially leading to higher future revenues and improved market positioning.

Electrolux Professional Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Electrolux Professional's revenue will grow by 4.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 9.7% in 3 years time.
• Analysts expect earnings to reach SEK 1.4 billion (and earnings per share of SEK 4.85) by about May 2028, up from SEK 803.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, down from 20.2x today. This future PE is lower than the current PE for the SE Machinery industry at 21.5x.
• 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 6.05%, as per the Simply Wall St company report.

Electrolux Professional Future Earnings Per Share Growth

Risks

• The decline in Laundry order intake, particularly in North America, after previously high sales could indicate potential revenue volatility and impact future margins.
  
• Continued geopolitical tensions and economic uncertainty could affect overall consumer and business confidence, leading to cautious spending and potentially impacting Electrolux Professional's revenues and margins.
  
• The introduction of U.S. tariffs, although mitigated, still poses a risk that could reduce the competitiveness of Electrolux Professional's imported products, potentially affecting 6-7% of the total group sales and impacting earnings.
  
• Increased operating costs, including R&D and marketing expenses, may pressure net margins unless offset by substantial revenue growth or successful new product launches.
  
• Currency fluctuations, particularly a stronger Swedish Krona against the U.S. dollar, could negatively impact revenue and earnings due to the company's international exposure.

Valuation

• The analysts have a consensus price target of SEK76.5 for Electrolux Professional based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK14.4 billion, earnings will come to SEK1.4 billion, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of SEK56.3, the analyst price target of SEK76.5 is 26.4% 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.