Record Backlog And Sustainable Projects Will Power US And European Infrastructure Expansion

Key Takeaways

• Strong order backlog, favorable market trends, and alignment with public investments position Skanska for sustained revenue and earnings growth across geographies.
  
• Emphasis on ESG leadership, selective project focus, and resilient financial health enhance margins, stability, and shareholder value despite regional market fluctuations.
  
• Weak property markets, delayed asset sales, higher restructuring costs, and industry risks threaten Skanska's margins, earnings stability, and ability to generate reliable cash flow.

Catalysts

Operates as a construction and project development company in the Nordics, Europe, and the United States.

• Skanska's record-high order backlog (19 months of production, SEK 268 billion) and strong book-to-bill ratios (>100% across all geographies) position the company to benefit from sustained government infrastructure spending, especially in the US and Europe, supporting future revenue growth.
  
• The company is seeing robust demand and improved outlooks in key markets (Swedish civil, Central European residential), which are driven by continued urbanization, population growth, and increased public investments in defense, energy, and water infrastructure, laying the groundwork for mid
• and long-term earnings expansion.
  
• Skanska's focus on high-quality, sustainable (LEED/green) projects and a strong track record on decarbonization (62% emissions reduction since 2015) aligns it with rising ESG standards, positioning it to capture higher-margin projects as green building becomes increasingly mandated-supporting both revenue and net margin improvement.
  
• Healthy cash flow, a strong balance sheet (net cash, 37% equity ratio), and prudent project selection enable Skanska to remain resilient in volatile markets, invest in technology, and return capital to shareholders, providing a buffer and potential for increased shareholder returns.
  
• Despite weak Nordic residential markets, Skanska has shown flexibility and selectivity-emphasizing higher-margin Central European projects and maintaining a solid pipeline-allowing for operational recovery in softer regions and supporting the stability of group-wide margins and earnings.

Skanska Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Skanska's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.3% today to 4.3% in 3 years time.
• Analysts expect earnings to reach SEK 9.0 billion (and earnings per share of SEK 19.88) by about September 2028, up from SEK 6.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, down from 15.4x today. This future PE is lower than the current PE for the GB Construction industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.6%, as per the Simply Wall St company report.

Skanska Future Earnings Per Share Growth

Risks

• Persistent weakness and slow recovery in the Nordic residential and commercial property markets, driven by low consumer confidence and broader macroeconomic uncertainties, could continue to depress volumes and margins in these core geographies, impacting overall revenue growth and earnings.
  
• The continued hesitancy and lack of transactions in the U.S. commercial property divestment market-primarily due to sustained high long-term interest rates-may delay planned asset sales, limiting Skanska's ability to recycle capital efficiently and suppressing earnings from property development.
  
• Elevated investment and restructuring costs, particularly those related to IT transformation and outsourcing of infrastructure, are causing central expenses to rise, potentially eroding net margins and limiting free cash flow available for dividends or reinvestment.
  
• The project development segment is currently in a net divestment cycle, and with a shallow transaction market and lumpy sales profile, there is heightened risk of irregular revenue recognition and increased earnings volatility over the medium term.
  
• Beyond company-specific execution, ongoing industry-wide risks such as construction labor shortages and potential cost inflation from regulatory demands or material prices could squeeze margins on both existing backlog and future projects, placing downward pressure on operating income and profitability.

Valuation

• The analysts have a consensus price target of SEK254.25 for Skanska 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 SEK285.0, and the most bearish reporting a price target of just SEK240.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK206.4 billion, earnings will come to SEK9.0 billion, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 6.6%.
• Given the current share price of SEK230.7, the analyst price target of SEK254.25 is 9.3% 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.