Is Siemens Fairly Priced After Energy Contracts and Recent Share Price Dip?

• Curious whether Siemens stock is a bargain right now? Let’s dive in and see how the numbers stack up for investors looking for value.
• Recently, Siemens shares have experienced a range of movement. The stock has climbed 20.5% year-to-date and 22.6% over the past year. However, it also saw a noticeable dip of 7.2% in the last 30 days.
• One key reason for these shifts is that Siemens has been in the headlines, with investor sentiment influenced by new contracts in energy infrastructure and developments in the automation sector. These factors are affecting expectations about the company’s growth prospects and its ability to manage global challenges.
• In terms of valuation, Siemens currently scores a 4 out of 6 on our checks for being undervalued here, placing it ahead of many peers. This article will break down what this means, explore different methods to assess whether Siemens is trading at a fair price, and reveal an alternative way to think about value at the end.

Siemens delivered 22.6% returns over the last year. See how this stacks up to the rest of the Industrials industry.

Approach 1: Siemens Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and then discounting those projections back to today’s value. In Siemens’ case, the DCF uses a two-stage approach to forecast Free Cash Flow (FCF) over the next decade and calculate what those future billions are worth in the present.

Currently, Siemens generates €10.96 Billion in Free Cash Flow. Analyst estimates see this figure rising steadily for the next five years, reaching €11.12 Billion by 2030. It is important to note that while the first five years of these projections use specific analyst forecasts, projections beyond that are calculated through extrapolation based on historical and expected growth trends. This method aims to reflect the company’s long-term earning power in today’s terms.

Based on these projections, the DCF model values Siemens’ shares at €295.67 each. Compared to its current market price, this indicates Siemens is trading at a 22.9% discount to intrinsic value, suggesting the stock is undervalued by a meaningful margin.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Siemens is undervalued by 22.9%. Track this in your watchlist or portfolio, or discover 932 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Siemens.

Approach 2: Siemens Price vs Earnings

The Price-to-Earnings (PE) ratio is often the go-to metric for valuing established, profitable companies like Siemens because it tells investors how much they are paying for each euro of earnings. This is especially relevant when profits are steady or growing, as in Siemens’ case.

A “normal” or “fair” PE ratio can vary widely depending on factors such as the company’s expected growth and the risks it faces. If investors anticipate higher earnings growth or see the company as less risky, a higher PE ratio can be justified. On the other hand, lower growth prospects or higher risks tend to drive the fair ratio down.

Currently, Siemens trades at a PE ratio of 23.3x. For comparison, the Industrials sector average is 12.1x, while its peers are priced at a much higher 44.3x. This places Siemens below its direct peers but well above the broader industry average.

Simply Wall St’s proprietary “Fair Ratio” comes in at 29.4x for Siemens. This figure goes beyond plain averages by adjusting for the company’s expected earnings growth, profit margins, size, industry, and specific risks. As the Fair Ratio captures a fuller picture of Siemens’ outlook, it can be more insightful than using generic benchmarks alone.

Comparing the Fair Ratio of 29.4x to Siemens’ current 23.3x, the stock appears undervalued. Investors are paying less than what would be expected given Siemens’ growth prospects and risk profile.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1445 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Siemens Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your story or perspective on Siemens, combining your view of the business and its future. You can easily create and customize a Narrative on Simply Wall St’s Community page, which is used by millions of investors.

Narratives go beyond crunching numbers by connecting your assumptions about Siemens’ future revenue, earnings, and profit margins with a financial forecast. This ultimately leads to your own estimate of fair value and makes it much easier to see whether Siemens fits your investing style or strategy. By comparing your fair value to the current price, you can decide if now is the time to buy, sell, or hold.

Best of all, Narratives are kept up to date automatically every time new information, such as earnings or news, affects Siemens, so your investment decisions are always informed by the most recent data. For example, some investors believe Siemens' innovation in automation will push earnings and fair value as high as €300 per share, while others, more cautious about competition and industry headwinds, see value closer to €185. Narratives let you own your viewpoint and react confidently as the story evolves.

Do you think there's more to the story for Siemens? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com