SKF (OM:SKF B) Discounted Valuation Reinforces Bullish Narrative as Strong Profit Growth Forecast

AB SKF (OM:SKF B) saw its earnings grow by an average of 1.3% per year over the past five years, while its net profit margin now sits at 5.2%, slightly below the 5.7% posted last year. Revenue is forecast to grow by 2.9% annually, lagging the Swedish market average of 3.7%. Although the company experienced negative earnings growth over the past year, forward projections see a strong annual growth rate of 21.5%, buoyed by what are considered high quality earnings.

See our full analysis for AB SKF.

Next, we will measure these headline stats against the dominant narratives in the market to see where consensus meets reality and where it might diverge.

See what the community is saying about AB SKF

Industrial Segment Delivers Majority of Profits

• The industrial division now makes up 72% of AB SKF's sales and drives 89% of its adjusted operating profit, reflecting an ongoing shift away from automotive exposure.
• Analysts' consensus view highlights that strategic investments in automation, manufacturing regionalization, and rightsizing are expected to enhance operational efficiency and margins. The core industrial business is expected to benefit the most from these changes.
  • This focus is seen as a path to higher-margin, stable revenue, particularly as SKF expands advanced, energy-efficient bearings.
  • The narrative also cites expansion in high-growth verticals such as aerospace and moves toward digital service solutions as important factors for driving premium pricing and recurring revenue streams.

Get the full scoop on how the industrial side is shaping AB SKF’s future in the consensus narrative: 📊 Read the full AB SKF Consensus Narrative.

Profit Margin Recovery on the Horizon

• Profit margins are forecast to rebound from 5.6% today to 9.1% in three years, as projected by analysts for a significant lift in profitability.
• According to the consensus narrative, catalysts for this improvement include exiting underperforming automotive operations and modernizing the industrial segment.
  • Consensus sees modernization initiatives and a focus on higher-growth, premium product lines as engines for margin improvement and gross margin expansion.
  • However, it also notes that execution risks and restructuring costs must be monitored. The ultimate pace of margin gains depends on how well these changes are managed.

Discounted Valuation Versus Industry Peers

• SKF B’s Price-to-Earnings ratio stands at 23.2x, below both the Swedish machinery sector average of 24.3x and its peer group at 26.7x. The current share price of 248.40 is still below the DCF fair value estimate of 276.28.
• Consensus narrative points out that this relative discount, along with the current share price sitting just under the analyst price target of 257.00, signals the market’s expectation that earnings growth and margin recovery are already reflected in the price.
  • While there is upside to fair value, analysts emphasize that future outperformance will depend on AB SKF sustaining its growth outlook and delivering margin improvements faster than competitors in the sector.
  • The narrow gap between price and target reflects cautious optimism, but also suggests little room for disappointment if projected gains fail to materialize.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for AB SKF on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A great starting point for your AB SKF research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

See What Else Is Out There

While AB SKF is forecasting a rebound in profit margins, its current earnings and revenue growth still trail behind sector averages. Margin recovery remains uncertain.

If you want more confidence in steady growth and reliable performance, focus your search on companies showing consistent results across market cycles in our stable growth stocks screener (2119 results).

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.

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