ESAB: Momentum In India And Middle East Will Drive Share Price Recovery

Key Takeaways

• Global infrastructure growth, automation adoption, and targeted acquisitions drive higher margins, recurring revenues, and diversified revenue streams for sustained long-term earnings.
  
• Operational excellence, digital innovation, and disciplined cost management enhance productivity, support margin expansion, and strengthen shareholder returns.
  
• Exposure to global trade uncertainty, cyclical demand, and evolving technologies challenges ESAB's revenue stability and margins despite ongoing investments in automation and innovation.

Catalysts

Engages in the formulation, development, manufacture, and supply of consumable products and equipment for use in cutting, joining, automated welding, and gas control equipment.

• ESAB is positioned to benefit from rising global infrastructure investment and energy project activity, particularly in high-growth markets like Asia-Pacific and the Middle East-recent wins and acquisitions in these regions are supporting robust volume growth and higher EBITDA margins, indicating stronger future revenue and earnings potential as these long-term demand drivers persist.
  
• The increasing adoption of automation in welding, driven by skilled labor shortages, is accelerating demand for higher-margin, technologically advanced solutions; ESAB's expanding equipment and automation portfolio, bolstered by acquisitions like EWM and recent AI/EBX initiatives, should sustain a long-term shift toward improved net margins and recurring revenues.
  
• The company's strategic focus on expanding consumables and aftermarket services, further supported by recent acquisitions with high gross margins (DeltaP, Aktiv), is growing its base of recurring, predictable revenues and margins, which can mitigate cyclicality and support more consistent future earnings growth.
  
• ESAB's strong global footprint and local execution, especially in regions benefiting from stimulus for energy transition and electrification, diversify its revenue streams and reduce reliance on any single market, which should support sustained top-line growth and margin expansion over the next several years.
  
• Ongoing operational excellence programs (EBX/AI/back office optimization), combined with disciplined cost management and reinvestment in R&D and digital innovation, are driving record productivity gains and EBITDA margin performance, creating additional upside for long-term net margin improvement and shareholder returns.

ESAB Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ESAB's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.2% today to 13.4% in 3 years time.
• Analysts expect earnings to reach $413.9 million (and earnings per share of $6.68) by about September 2028, up from $279.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, up from 24.8x today. This future PE is greater than the current PE for the US Machinery industry at 24.7x.
• Analysts expect the number of shares outstanding to grow by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.33%, as per the Simply Wall St company report.

ESAB Future Earnings Per Share Growth

Risks

• Tariff-related uncertainty, particularly in North America and Mexico, has led to significant volume headwinds and order delays for ESAB's automation and Fabtech product lines, with a slow and uncertain recovery tied to the resolution of trade agreements-this may result in ongoing pressure on revenue and margin growth in the Americas.
  
• ESAB's exposure to volatile emerging markets, especially in Mexico, South America, and parts of Asia-Pacific, increases earnings vulnerability due to fluctuating currencies, unpredictable demand patterns, and local economic or regulatory disruptions-potentially leading to inconsistent net earnings and cash flow.
  
• The company's growth in high-margin equipment and consumables remains heavily impacted by cyclical factors, with equipment sales being especially vulnerable to downturns in industrial capex or broader manufacturing slowdowns; this cyclical exposure limits the predictability of EPS and revenue in downturns.
  
• Increasing global protectionism, shifting trade policies, and greater geopolitical fragmentation pose ongoing risks to ESAB's efficient cross-border operations and supply chains-potentially raising structural costs, squeezing net margins, and slowing top-line growth.
  
• While ESAB is investing heavily in AI, automation, and R&D, longer-term industry shifts such as adoption of additive manufacturing (3D printing), manufacturing lightweight composite materials, and accelerated automation may shrink the addressable market for traditional welding and cutting, raising uncertainty around future organic revenue growth.

Valuation

• The analysts have a consensus price target of $135.3 for ESAB based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $150.0, and the most bearish reporting a price target of just $118.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.1 billion, earnings will come to $413.9 million, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 8.3%.
• Given the current share price of $113.96, the analyst price target of $135.3 is 15.8% 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.