Intensifying Automation And Trade Tensions Will Sap Mining Margins

Key Takeaways

• Accelerating automation, regulatory changes, and agile competitors threaten Sandvik's technology leadership, margin stability, and exposure to volatile, cyclical end markets.
  
• Geopolitical risks, deglobalization, and low-cost competition may disrupt sales channels, compress earnings, and challenge Sandvik's ability to maintain market share.
  
• Expansion into automation and electrification, coupled with stable recurring revenues and margin resilience, strongly positions Sandvik for sustainable long-term growth.

Catalysts

An engineering company, provides products and solutions for mining and rock excavation, metal cutting, and materials technology worldwide.

• The rapid pace of automation and digitalization across global manufacturing and mining creates significant long-term risks that Sandvik's current innovation pipeline may not keep pace with, especially as tech-driven new entrants and agile competitors could erode its technology leadership, undermining future revenue growth.
  
• Ongoing geopolitical tensions and the trend toward deglobalization, including rising tariffs, threaten Sandvik's established cross-border sales channels. This raises the risk of structurally lower order intake, especially if trade conditions continue to deteriorate or multinational supply chains fragment, leading to lasting pressure on top-line revenues.
  
• Increased regulatory scrutiny on mining and industrial emissions, coupled with the potential for stricter ESG requirements, may dampen demand for Sandvik's mining equipment and force incremental compliance and supply chain costs, compressing future margins in its most profitable segments.
  
• An overreliance on cyclical mining and metals end markets leaves Sandvik exposed to sharp downturns or structural slowdowns in these sectors. Should commodity prices or investment in new mining capacity falter, Sandvik's sales could exhibit significant earnings volatility or sustained weakness.
  
• Intensifying price competition from low-cost manufacturers-particularly in lower value-add, commoditized product lines-has the potential to erode Sandvik's market share and force margin concessions, placing persistent downward pressure on both earnings and return on capital over the long term.

Sandvik Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Sandvik compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Sandvik's revenue will grow by 2.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 11.9% today to 12.5% in 3 years time.
• The bearish analysts expect earnings to reach SEK 16.2 billion (and earnings per share of SEK 12.87) by about July 2028, up from SEK 14.5 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 16.7x on those 2028 earnings, down from 20.9x today. This future PE is lower than the current PE for the GB Machinery industry at 23.6x.
• 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 6.38%, as per the Simply Wall St company report.

Sandvik Future Earnings Per Share Growth

Risks

• A record-high order backlog, strong and broad-based organic order intake-especially in Mining and key growth segments such as powder solutions and software-points to robust underlying demand and likely stability in future revenues.
  
• Successful execution on pricing actions and tariff offsets, alongside strong cost control, have protected margins even during significant currency headwinds and inflationary pressures, indicating resilience in net margins and profitability.
  
• Strategic expansion into battery electric vehicle solutions, software, digital offerings, and recycling, supported by recent acquisitions, positions Sandvik to benefit from ongoing secular trends in automation, electrification, and sustainability, supporting longer-term revenue and earnings growth.
  
• The company's shift towards recurring aftermarket, parts and services, and digital offerings has led to more stable revenue streams, increasing stickiness with customers and improving cash flow reliability and margin stability into the future.
  
• Ongoing investments in increasing production capacity and R&D, backed by a strong cash flow and healthy capital allocation, enable Sandvik to both meet current robust demand and capitalize on future opportunities, underpinning positive longer-term earnings potential.

Valuation

• The assumed bearish price target for Sandvik is SEK179.1, which represents two standard deviations below the consensus price target of SEK241.74. This valuation is based on what can be assumed as the expectations of Sandvik'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 SEK275.0, and the most bearish reporting a price target of just SEK161.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK128.8 billion, earnings will come to SEK16.2 billion, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 6.4%.
• Given the current share price of SEK241.2, the bearish analyst price target of SEK179.1 is 34.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.