Schneider Electric: Capital Markets Day Reveals Ambitious Midterm Financial Targets

During the past decade, wide-moat Schneider Electric’s strategy has focused on expanding its digital capabilities, which have advantageously positioned the group to capitalize on several secular growth themes. Rising investment in critical infrastructure (electrical utilities and data centers) required to support multiyear megatrends and a shift in revenue mix toward higher-margin software and services, underpin the group’s lofty expectations set at its capital markets day. It has guided for annualized revenue growth between 7% and 10% and EBITA margin expansion of 200 basis points during the next 4 years. Given a gloomy macroeconomic environment backdrop, we estimate the low end of its target reflects a more likely base case. Nevertheless, we raise our fair value estimate to EUR 174 from EUR 168 to reflect Schneider’s strong market position in fast-growing end markets. Shares appear slightly undervalued.