Digital Twins, Sustainability And IoT Will Transform Industrial Solutions

Key Takeaways

• Hexagon is set to accelerate high-margin recurring revenues and cash flow through SaaS growth, product launches, and capturing emerging smart industrial markets.
  
• Structural changes, including the Octave spinoff and strong acquisition strategy, will improve capital allocation and boost earnings multiples across its core divisions.
  
• Structural inefficiencies, sector exposure, global uncertainties, shifting client technology preferences, and escalating R&D demands threaten margins, competitive edge, and long-term growth.

Catalysts

Provides geospatial and industrial enterprise solutions worldwide.

• Analyst consensus believes recurring SaaS and software revenues will drive stable revenue and margin growth, but with ALI achieving over 80% recurring revenue already and double-digit SaaS growth, it is likely Hexagon will see a faster and steeper acceleration in high-margin recurring revenues, structurally expanding both operating margins and cash flow conversion.
  
• While the consensus sees the Octave spinoff as a value unlock, the market is underestimating the global re-rating potential from creating two distinct pure plays; combined with rapid cost action and sharper focus, both Hexagon and Octave could see significantly higher earnings multiples and improved capital allocation well ahead of the 2026 completion.
  
• The upcoming wave of product launches-including AEON industrial humanoid robots and the Maestro CMM platform-positions Hexagon to be a first mover in the industrial automation and smart manufacturing revolution, providing a step change in long-term organic revenue and gross margin growth by capturing emerging high-value markets.
  
• With governments and large-scale enterprises accelerating investment in smart infrastructure, sustainability, and real-time geospatial intelligence, Hexagon's integrated sensor, analytics, and digital twin solutions are set to capture a disproportionate share of new project spend, driving structurally higher growth rates across multiple divisions.
  
• Hexagon's proven track record of successfully integrating bolt-on acquisitions, combined with a healthy balance sheet and disciplined capital deployment, positions the company to capture adjacent fast-growing verticals and unlock further cross-selling, generating sustained operating leverage and outsized EPS accretion over the next cycle.

Hexagon Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Hexagon compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Hexagon's revenue will grow by 7.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 17.3% today to 21.2% in 3 years time.
• The bullish analysts expect earnings to reach €1.4 billion (and earnings per share of €0.53) by about August 2028, up from €941.9 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 bullish analyst cohort, the company would need to trade at a PE ratio of 29.4x on those 2028 earnings, up from 27.7x today. This future PE is greater than the current PE for the GB Electronic industry at 28.9x.
• 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 6.51%, as per the Simply Wall St company report.

Hexagon Future Earnings Per Share Growth

Risks

• Heavy reliance on repeated large-scale cost reduction programs, rather than sustained operational productivity improvements, suggests underlying structural inefficiencies that could continue to weigh on net margins and earnings.
  
• Exposure to weak and cyclical end markets, such as European and Chinese construction as well as traditional manufacturing sectors, poses a risk of stagnating or declining core revenue streams as these sectors decarbonize or mature.
  
• Material and recurrent impacts from currency fluctuations, tariffs, and geopolitical uncertainty highlight the company's vulnerability to global supply chain and regulatory fragmentation, adding persistent pressure to both operating margins and top-line growth.
  
• The migration toward cloud-native, open-source, and proprietary in-house solutions among industrial clients could erode demand for Hexagon's traditional software platforms, diminishing competitive advantage and impacting long-term revenue growth.
  
• The need for sustained and potentially rising R&D investments to keep pace with rapid innovation in AI, robotics, and automation creates a risk that operating expenses could outpace realized gains, thereby constraining future net margins and earnings.

Valuation

• The assumed bullish price target for Hexagon is SEK142.65, which represents two standard deviations above the consensus price target of SEK113.7. This valuation is based on what can be assumed as the expectations of Hexagon'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 SEK144.88, and the most bearish reporting a price target of just SEK88.94.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €6.7 billion, earnings will come to €1.4 billion, and it would be trading on a PE ratio of 29.4x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of SEK108.45, the bullish analyst price target of SEK142.65 is 24.0% 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.