Atlas Copco's Orders Seem to Be Coming Off Peak Cycle, While Revenue and Margin Remain Strong

Atlas Copco’s demand slowed in the third quarter, with book/bill slipping below 1 for the first time in seven quarters in two of its divisions: vacuum and power technique. That said, the absolute order level was impressive. Putting demand into context of prepandemic levels, the SEK 41 billion in group orders for the third quarter of 2022 was 50% above the SEK 27 billion in the same period for 2019. Third-quarter 2022 orders in vacuum and power technique were up 50%-60% over 2019. The elevated group order levels continued to favor revenue growth. On an organic basis, orders and revenue grew 6% and 18%, respectively, while we expect midcycle revenue growth closer to 5%. Operating profit margin remained solid at 22%, reflective of Atlas Copco's successful price increases and operating leverage. We maintain our narrow moat rating. While we expect to adjust our near-term forecasts to account for strong revenue growth this year and perhaps lower revenue growth next year than our current forecasts, we do not expect the changes to materially affect our SEK 109 fair value estimate.