SU: Data Center Expansion And European Construction Recovery Will Drive Long-Term Momentum

Key Takeaways

• Schneider Electric's shift to software and digital services, alongside strategic acquisitions, is driving recurring earnings, higher margins, and expanded geographic presence.
  
• Growing global demand for electrification, energy efficiency, and digital infrastructure is broadening the company's addressable market, supporting resilient long-term revenue and margin growth.
  
• Persistent margin pressures, regional and segment weakness, volatile currencies, and heavy investment pose risks to profitability, cash flow, and growth even as expansion efforts continue.

Catalysts

Engages in the energy management and industrial automation businesses worldwide.

• Sustained double-digit growth pipeline and robust backlog in data centers, driven by the expansion of AI computing, digital infrastructure, and global investment in power reliability, indicate Schneider Electric is poised for multi-year revenue and margin growth as digitalization accelerates worldwide.
  
• The accelerating global shift towards electrification, renewable energy, and energy efficiency-supported by both corporate and government sustainability initiatives-continues to expand Schneider's addressable market and supports steady long-term revenue growth, particularly in energy management and grid modernization.
  
• The company's transition toward software and recurring digital services (notably EcoStruxure, AVEVA SaaS, and EcoCare), now representing 60% of revenues and growing at double-digit rates, should drive higher margins and recurring earnings, with further upside potential as AVEVA's SaaS conversion completes by 2027.
  
• Strategic acquisitions and portfolio optimization, such as full ownership of Schneider Electric India and the Motivair acquisition (liquid cooling for data centers), are set to boost operational leverage, enhance geographic exposure, and improve return on capital, underpinning long-term earnings and margin expansion.
  
• Ongoing R&D and product innovation in areas like AI-driven digital twins, grid digitalization, energy-efficient building solutions, and advanced industrial automation continue to differentiate the company and support cross-selling opportunities, making future top-line and margin growth more resilient as secular demand strengthens.

Schneider Electric Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Schneider Electric's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.9% today to 13.8% in 3 years time.
• Analysts expect earnings to reach €6.7 billion (and earnings per share of €11.76) by about September 2028, up from €4.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €5.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.1x on those 2028 earnings, down from 28.5x today. This future PE is greater than the current PE for the GB Electrical industry at 14.5x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.43%, as per the Simply Wall St company report.

Schneider Electric Future Earnings Per Share Growth

Risks

• Ongoing margin pressure from negative mix (faster growth in lower-margin Systems versus Products), pricing delays versus inflation, and deflationary pressure in China could persist, which risks compressing gross margins and slowing net income growth if not offset by productivity gains.
  
• Industrial Automation remains structurally weaker, with continued negative or flat sales in some regions, a slower-than-anticipated recovery in Discrete/Process Automation, and a multi-year SaaS transition at AVEVA weighing on margins-this could result in volatile or below-trend earnings contribution for several years.
  
• European market conditions remain challenging, particularly in Residential construction, with only cautious optimism about midterm acceleration; persistent slowdowns or regulatory uncertainty could limit revenue growth and exacerbate regional underperformance.
  
• FX headwinds driven by continued volatility and depreciation of key currencies (USD, INR, etc.) against the euro may significantly impact reported revenues and adjusted EBITA margins if trends persist, introducing ongoing top-line and margin uncertainty.
  
• Heavy investment in R&D, expansion, and acquisitions-including ramping up for Data Center capacity and India integration-while necessary for long-term growth, may dilute near-to-mid-term margins, raise debt ratios, introduce integration risk, and pressure free cash flow, especially if anticipated growth does not materialize as forecast.

Valuation

• The analysts have a consensus price target of €253.098 for Schneider Electric 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 €289.0, and the most bearish reporting a price target of just €220.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €48.6 billion, earnings will come to €6.7 billion, and it would be trading on a PE ratio of 27.1x, assuming you use a discount rate of 8.4%.
• Given the current share price of €217.25, the analyst price target of €253.1 is 14.2% 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.