SKF B: Autos Spin-Off And New Steel Development Will Shape Future Outlook

Analysts have modestly reduced their fair value estimate for AB SKF to roughly SEK 267 from about SEK 267 previously, reflecting slightly lower revenue growth and margin assumptions, as well as a mixed but still constructive range of updated price targets from the Street.

Analyst Commentary

Recent Street research presents a mixed but generally constructive view on AB SKF, with price targets clustering in the mid to high SEK 200s and ratings ranging from Neutral to Buy. The latest revisions highlight both improving end market trends and lingering execution and cyclical risks that could influence how quickly the company closes the gap to perceived fair value.

Bullish Takeaways

Bullish analysts point to the upgraded Buy rating and higher price targets around SEK 260 to SEK 280 as evidence that the shares still offer upside relative to the current trading range, particularly if earnings growth accelerates.
Several updates emphasize an expected acceleration in sales and profit growth, underpinned by improving European short cycle momentum, which could support a re-rating if margins expand as anticipated.
The planned spin-off of the Autos business by 2026 is viewed positively, with bullish analysts arguing that removing a structurally weaker, more volatile unit could simplify the equity story and improve group-level return on capital.
Incremental target raises, even from more cautious voices, suggest that execution on cost control and portfolio actions is being recognized and that downside to earnings estimates is viewed as limited in the near term.

Bearish Takeaways

Bearish analysts focus on recent target cuts toward the SEK 232 to SEK 260 range, arguing that prior expectations embedded too much optimism on margin recovery and top-line growth, which may be harder to achieve in a choppy macro backdrop.
The persistent Neutral stance from several corners signals concern that valuation already discounts a substantial portion of the anticipated cyclical upturn, which may limit the risk/reward profile until there is clearer evidence of sustained volume and pricing leverage.
The ongoing drag from the Autos segment remains a key overhang until the 2026 spin-off is completed, with worries that weaker mix and margin dilution could restrain group profitability over the next few reporting periods.
Cautious analysts also highlight execution risk around portfolio restructuring and the timing of the cycle recovery, warning that any slip in delivery versus guidance could lead to renewed pressure on both earnings estimates and the stock’s valuation multiple.

What's in the News

SKF will present a broad suite of clean technologies and circular solutions at COP30, where its remanufacturing offering will be honored as a Sustainable Business COP Best Case for extending product lifecycles and cutting CO2 emissions (Key Developments).
The company has developed ARCTIC15, a new temperature resistant, corrosion tolerant steel for aeroengine bearings. This enables higher power density and efficiency in next generation jet engines targeting 20 to 25% lower fuel use and emissions (Key Developments).
SKF is launching The Patent Bay, a platform that makes selected sustainability focused patents freely available to accelerate global collaboration and innovation at a time of record patent filings (Key Developments).
Management issued guidance for fourth quarter 2025, expecting organic sales to be relatively unchanged year over year. They also flagged a negative currency impact of around SEK 650 million on operating profit versus the prior year period (Key Developments).
SKF announced the relocation of production from its Tortuguitas plant in Argentina, discontinuing manufacturing at the site and affecting around 145 employees, while maintaining a local commercial presence to serve customers (Key Developments).

Valuation Changes

Fair Value Estimate has edged down slightly to around SEK 267 from approximately SEK 267 previously, reflecting marginally softer assumptions despite the headline figure appearing broadly unchanged.
Discount Rate has fallen slightly to about 6.60 percent from roughly 6.64 percent, implying a modestly lower required return and a slightly more supportive backdrop for valuation.
Revenue Growth has been reduced meaningfully to about 10.4 percent from roughly 12.0 percent, signaling a more cautious outlook on the top line trajectory over the forecast period.
Net Profit Margin has been trimmed slightly to around 9.45 percent from about 9.51 percent, indicating a small downgrade to medium term profitability expectations.
Future P/E has risen marginally to roughly 16.4x from about 16.4x, which is consistent with a slightly higher valuation multiple being applied despite more conservative growth and margin assumptions.

Strategic focus on industrial automation, digitalization, and sustainability positions SKF for improved operational efficiency and higher-margin, stable revenue streams.
Exiting the automotive segment enables better capital allocation and reduces exposure to volatile markets, supporting higher earnings quality.
Overexposure to declining automotive sales, execution risks in division separation, non-repeatable regional growth, currency headwinds, and costly restructuring threaten margins and earnings stability.

Catalysts

About AB SKF

Designs, manufactures, and sells bearings and units, seals, lubrication systems, condition monitoring, and services worldwide.What are the underlying business or industry changes driving this perspective?

The ongoing automation and digitalization of manufacturing, along with AB SKF's continued investments in automation, manufacturing regionalization, and rightsizing are expected to enhance operational efficiency and support sustained improvements in operating and EBITDA margins over the next several years.
The expansion and modernization of the industrial segment-now contributing 72% of sales and 89% of adjusted operating profit-positions SKF to benefit from the global push for energy efficiency and sustainability, driving future revenue growth from advanced, energy-efficient bearing solutions.
Strategic investments and commercial excellence initiatives in high-growth verticals such as aerospace (including increased aftermarket presence and doubling of capacity investments) are expected to deliver above-average sales growth and margin uplift, supporting premium pricing and gross margin expansion.
SKF's development and rollout of predictive maintenance, smart bearings, and digital service solutions-leveraging trends toward digitalization and IoT integration in manufacturing-are likely to grow higher-margin, recurring service and maintenance revenue streams, raising both revenue stability and overall margins.
The separation of the underperforming automotive segment and portfolio focus on core industrial businesses will allow SKF to allocate capital more efficiently, improving future earnings quality and reducing earnings volatility tied to cyclical automotive demand.

AB SKF Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming AB SKF's revenue will grow by 2.0% annually over the next 3 years.
Analysts assume that profit margins will increase from 5.6% today to 9.1% in 3 years time.
Analysts expect earnings to reach SEK 9.2 billion (and earnings per share of SEK 20.56) by about September 2028, up from SEK 5.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK10.4 billion in earnings, and the most bearish expecting SEK7.6 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.9x on those 2028 earnings, down from 20.2x today. This future PE is lower than the current PE for the GB Machinery industry at 22.4x.
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 6.35%, as per the Simply Wall St company report.

AB SKF Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

AB SKF's heavy reliance on the automotive sector, which continues to experience significant organic sales declines, exposes the company to secular risks from accelerating electrification and declining demand for traditional bearings, potentially leading to long-term revenue and earnings pressure.
The ongoing separation of the automotive division is still subject to considerable execution and timing risk, with management acknowledging continued critical milestones and potential for delays; unresolved separation costs and operational dis-synergies could negatively impact net margins and future cash flows.
Recent growth "green shoots" in markets like China wind and Southeast Asia appear to be driven primarily by policy-driven prebuying and timing effects rather than sustainable demand, suggesting that reported regional growth rates may not be repeatable and increasing volatility in revenues.
Continued FX headwinds have materially impacted top-line reported figures (nearly –10% in the most recent quarter), and the company is unable to forecast relief, which could depress reported earnings and return on capital employed if unfavorable currency trends persist.
The company's restructuring and rightsizing program, while intended to boost competitiveness, entails sizable near-term cash costs and workforce reductions; if demand does not recover or cost savings fall short, AB SKF may experience margin compression and slower progress on earnings improvement.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of SEK250.2 for AB SKF 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 SEK280.0, and the most bearish reporting a price target of just SEK190.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK101.4 billion, earnings will come to SEK9.2 billion, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 6.4%.
Given the current share price of SEK238.2, the analyst price target of SEK250.2 is 4.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

SKF B: Spinning Off Autos Will Support Future Execution And Efficiency Gains