Company Reports

Siemens is a disparate portfolio of high-quality businesses in different sectors. The spin off of its cyclical energy and wind turbine divisions has enhanced the group’s return profile and provides more durable returns than in the past. Further deconsolidation appears unlikely. All its businesses have strong product portfolios to compete in long-term attractive end markets that benefit from the secular growth trends of digitalization and the energy transition. In addition, its installed base of long-life industrial equipment requires a constant stream of aftermarket upgrades and maintenance, underpinning its high-single-digit earnings growth ambition.

Wide-moat Siemens delivered a solid first-quarter fiscal 2024, confirming that the business is well positioned for several secular growth themes, which helped offset weakness in its short-cycle automation business. Its organic order intake grew 2% to EUR 22.3 billion, exceeding company-compiled consensus of EUR 20.5 billion and outperforming its peer ABB, which has already reported its results. Management confirmed full-year revenue guidance between 4% and 8%, provided previously. A book/bill ratio of 1.2 times and a record EUR 113 billion order backlog give us confidence Siemens will achieve its target. We maintain our EUR 166 fair value estimate and view shares as fairly valued.

The U.N. Climate Change Conference, otherwise known as COP28, has reiterated the secular growth theme underpinning our recently upgraded forecasts for the capital goods manufacturers. Combating climate change requires upgrading electricity grids to accommodate renewable energy and greater adoption of energy-management solutions for energy-intensive infrastructure, such as buildings and data centers. Wide-moat Schneider Electric is best positioned, in our view, and is trading at a slight discount to our recently revised EUR 174 fair value estimate.

Wide-moat Siemens closed a record fiscal 2023 with positive momentum heading into 2024. Fourth-quarter organic order growth of 6% has propelled the group’s order backlog to EUR 111 billion, which will provide a strong foundation for growth in fiscal 2024. Full-year 2024 guidance of revenue growth at between 4% and 8% marginally exceeds company-compiled consensus of 5%. Record free cash flow of EUR 10 billion has supported an 11% dividend increase to EUR 4.7 per share and expanded the share buyback program. Shares are trading 5% higher, but remain undervalued to our EUR 166 fair value estimate, which we maintain. Siemens remains our preferred pick in the sector due to its attractive growth outlook and valuation discount to peers.

We raise our fair value estimate for Siemens to EUR 166 from EUR 160 after taking a fresh look at the business, which also sees us raising our economic moat rating to wide. The spinoffs of its cyclical energy and wind turbine divisions in 2020, combined with an increasing mix of revenue generated from its formidable industrial software offering, have improved the quality of the group and provide more durable returns than in the past. Shares are trading in undervalued territory and at a larger discount than its European capital goods peers, despite its superior market outlook. We believe the market is overstating the perceived cyclicality of the business and its strongly competitive advantaged business units, which warrant a higher multiple than its current 14 times forward P/E ratio.

Siemens is a disparate portfolio of high-quality businesses in different sectors. The spin off of its cyclical energy and wind turbine divisions has enhanced the group’s return profile and provides more durable returns than in the past. Further deconsolidation appears unlikely. All its businesses have strong product portfolios to compete in long-term attractive end markets that benefit from the secular growth trends of digitalization and the energy transition. In addition, its installed base of long-life industrial equipment requires a constant stream of aftermarket upgrades and maintenance, underpinning its high-single-digit earnings growth target.

Narrow-moat Siemens reported 15% organic order growth, which appears impressive, but fails to tell the complete story due to several large order wins in the mobility segment. Destocking for short-cycle products, which do not need to be bought far in advance, due to the easing of supply chain constraints and a strong prior-year comparable led to order declines in the digital industry and smart infrastructure segments of 35% and 1%, respectively. Group revenue and EPS guidance are unchanged, having been raised during the previous quarter. We aren’t overly concerned by possible short-term headwinds from destocking due to the group’s EUR 110 billion order backlog, with few cancellations, as well as Siemens’ book/bill ratio of 1.28 times. We believe quarterly demand volatility doesn't detract from Siemens being well positioned for the digitalization of industrial activities. We maintain our fair value estimate of EUR 160 for Siemens and view shares as marginally undervalued.

Narrow-moat Siemens delivered a strong second quarter, reporting organic revenue and order intake growth of 15%. The mission-critical role of its vast range of products for customers combined with end markets with favorable secular growth trends, supported industrial profit growth of 41% with record profit margins in the digital industries segment. Similar to peers ABB and Schneider, Siemens raised its full-year guidance (the second consecutive quarter it has done so), anticipating organic revenue growth between 9% and 11%, up from its previously upgraded outlook of 7% to 10% growth. EPS guidance was also revised upward to between EUR 9.60 and EUR 9.90 from its previous guidance between EUR 8.90 and EUR 9.40. While we plan to marginally revise our estimates, we don’t expect a material change to our EUR 160 fair value estimate. Shares are marginally undervalued.

Siemens is a disparate portfolio of leaders in different sectors. The investment case remains complex, with new management unlikely to do any further deconsolidation of the four major businesses: plant management components and software (digital industries), medical equipment (Healthineers), electrical distribution equipment (smart infrastructure), and railway equipment (mobility), each contributing between 10% and 40% of group profits. All of these businesses have strong product portfolios to compete in long-term attractive end markets. Digital industries will benefit from industrial complexes increasingly using productivity-enhancing software and automation hardware. Siemens mobility and smart infrastructure have exposure to "green transformation." Siemens mobility is well placed to benefit from further electrification of European rail and eventually hydrogen trains. Smart infrastructure has a portfolio of products and software, like smart grid software, and connected low- and medium-voltage products, critical in power distribution and building infrastructure upgrades necessary to support growing, but volatile, renewables power supply and electric vehicle charging. However, in terms of profit contribution, digital industries and Healthineers combined generate 80% of the group total.

We increase our fair value estimates for Siemens AG to EUR 160 from EUR 145 for the locally traded shares and to $87 from $75 for the ADR. The drivers behind our changes include increased 2023 management guidance following the robust first-quarter 2023 results, the time value of money, and currency movements. We maintain our narrow moat rating for Siemens and see moderate upside for the shares relative to our fair value estimates.

Siemens is a disparate portfolio of leaders in different sectors. The investment case remains complex, with new management unlikely to do any further deconsolidation of the four major businesses: plant management components and software (digital industries), medical equipment (Healthineers), electrical distribution equipment (smart infrastructure), and railway equipment (mobility), each contributing between 10% and 40% of group profits. All of these businesses have strong product portfolios to compete in long-term attractive end markets. Digital industries will benefit from industrial complexes increasingly using productivity-enhancing software and automation hardware. Siemens mobility and smart infrastructure have exposure to "green transformation." Siemens mobility is well placed to benefit from further electrification of European rail and eventually hydrogen trains. Smart infrastructure has a portfolio of products and software, like smart grid software, and connected low- and medium-voltage products, critical in power distribution and building infrastructure upgrades necessary to support growing, but volatile, renewables power supply and electric vehicle charging. However, in terms of profit contribution, digital industries and Healthineers combined generate 80% of the group total.

Siemens reported a solid fourth quarter and enters 2023 with a solid backlog that will support revenue growth, adding some defensiveness against any GDP slowdown-driven demand deterioration. Order growth slowed in the fourth quarter relative to revenue growth with the book-to-bill close to 1 for most divisions. While slowing order growth might normally be a precursor to slower revenue growth, Siemens management guided for 6% to 9% organic revenue growth in 2023, similar to the 8% achieved in 2022. We expect to make adjustments to our forecasts and anticipate roughly a 5% positive impact on our EUR145 fair value estimate. We maintain our narrow-moat rating.

Siemens continued to experience good demand in its fiscal third quarter, with all divisions still reporting a book/bill above 1. Siemens Gamesa (now part of Siemens Energy) continues to struggle to reach solid profitability, resulting in Siemens Group taking a sizeable impairment charge of nearly EUR 2.9 billion, mainly from a lower valuation of Siemens Energy and to a lesser extent from the mobility division's Russia operations. While the impairment charges weighed down reported earnings, cash flow generation remained solid. Cash flow from operations was in line with the previous year, and the company's liquidity position has been boosted by asset disposals as well as up-front payments for orders in China related to company's digital industries division. Orders and revenue in digital industries were slightly above our expectations, while the margin headwinds in mobility were greater. We have made some modest adjustments to our forecast but are maintaining our EUR 145 fair value estimate and narrow moat rating.

Siemens is a disparate portfolio of leaders in different sectors. The investment case remains complex, with new management unlikely to do any further deconsolidation of the four major businesses: plant management components and software (digital industries), medical equipment (Healthineers), electrical distribution equipment (smart infrastructure), and railway equipment (mobility), each contributing between 10% and 40% of group profits. All of these businesses have strong product portfolios to compete in long-term attractive end markets. Digital industries will benefit from industrial complexes increasingly using productivity-enhancing software and automation hardware. Siemens mobility and smart infrastructure have exposure to "green transformation." Siemens mobility is well placed to benefit from further electrification of European rail and eventually hydrogen trains. Smart infrastructure has a portfolio of products and software, like smart grid software, and connected low- and medium-voltage products, critical in power distribution and building infrastructure upgrades necessary to support growing, but volatile, renewables power supply and electric vehicle charging. However, in terms of profit contribution, digital industries and Healthineers combined generate 80% of the group total.

Siemens is a portfolio of leaders in different sectors, but a disparate portfolio nonetheless. The investment case remains complex with new management unlikely to do any further deconsolidation of the four major businesses: plant management components and software (digital industries), medical equipment (healthineers), electrical distribution equipment (smart infrastructure), and railway equipment (mobility), each contributing between 10% and 40% of group profits. Each of these businesses have strong product portfolios to compete in long-term attractive end markets. Digital industries will benefit from industrial complexes increasingly using productivity-enhancing software and automation hardware. Siemens mobility and smart infrastructure have exposure to "green transformation." Siemens mobility is well placed to benefit from further electrification of European rail and eventually hydrogen trains. Smart infrastructure has a portfolio of products and software, like smart grid software, and connected low- and medium-voltage products, critical in power distribution and building infrastructure upgrades necessary to support growing, but volatile, renewables power supply and electric vehicle charging. However, in terms of profit contribution, digital industries and healthineers combined generate 80% of the group total.

We believe the selloff of 6% (at the time of writing) for Siemens shares after reported fiscal second-quarter results presents a buying opportunity. The selloff likely came from concerns over the reported 200-basis-point year-over-year decline in profit margin to 18% for the narrow-moat firm's digital industries segment (automation solutions). However, the decline was due to a mix of one-off effects: 50 basis points related to exiting Russia, 30 basis points from bonus accrual to salespeople exceeding order targets and 100 basis points for the timing differences in automation software for customers transitioning from premise to cloud-based or SAAS contracts. SAAS transition is in an early phase and will be multiyear but ultimately benefits the firm's cash flow profile by increasing the portion of recurring revenue. Siemens also announced it would exit Russia (after 170 years in the market), leading to a 40-basis-point group-level profit margin and 100-basis-point mobility segment-level profit margin impact. We maintain our EUR 145 fair value estimate for Siemens.

Exceptionally strong demand for automation and electrical components products boosted Siemens' first quarter 2022 demand, leading to results above company provided consensus. Orders were up a whopping 36% and revenue 9% on an organic basis. Management’s full year guidance now looks conservative given the high order backlog already booked in the first quarter of the fiscal year. The backlog will likely take a couple of quarters just to work through. Automation products from discrete end markets pushed the digital industries book to bill ratio to 1.6 times in the first quarter of fiscal year 2022, while 2021 full year book to bill for the division was already above 1 at 1.12. The smart infrastructure division saw strong demand for electrical components with a book to bill of 1.3 in the quarter, also above trend. For both divisions a key driver behind the exceptional demand is likely from customers building up inventories, a defensive move against both supply chain shortages and anticipated price increases. Overall book to bill for the industrial business was 1.5 times in the quarter and will support revenue for the next quarter or two. We currently sit in the middle of management guidance but expect to revise up our full year forecasts. However, we do not expect the changes to materially impact our fair value estimate, and our narrow moat rating remains intact.

Siemens is a portfolio of leaders in different sectors, but a disparate portfolio nonetheless. The investment case remains complex with new management unlikely to do any further deconsolidation of the four major businesses: plant management components and software (digital industries), medical equipment (healthineers), electrical distribution equipment (smart infrastructure), and railway equipment (mobility), each contributing between 10% and 40% of group profits. Each of these businesses have strong product portfolios to compete in long-term attractive end markets. Digital industries will benefit from industrial complexes increasingly using productivity-enhancing software and automation hardware. Siemens mobility and smart infrastructure have exposure to "green transformation." Siemens mobility is well placed to benefit from further electrification of European rail and eventually hydrogen trains. Smart infrastructure has a portfolio of products and software, like smart grid software, and connected low- and medium-voltage products, critical in power distribution and building infrastructure upgrades necessary to support growing, but volatile, renewables power supply and electric vehicle charging. However, in terms of profit contribution, digital industries and healthineers combined generate 80% of the group total.

Siemens' full year results were in line with our expectations and we are maintaining our narrow moat rating and fair value estimate. Orders grew ahead of revenue and management expects supply chain tightness to loosen in 2022. Management also expects revenue growth of 5%-8% in digital industries, smart infrastructure and mobility in line with our current forecasts and the medium-term guidance range. Operating profit margins were in line with our expectations for the full year, and the guidance for 2022 as well, with the exception of mobility where guidance is about 150 basis points below our expectations. We expect to make adjustments to our model but not materially impact our valuation.

Siemens is a portfolio of leaders in different sectors, but a disparate portfolio nonetheless. The investment case remains complex with new management unlikely to do any further deconsolidation of the four major businesses: plant management components and software (digital industries), medical equipment (healthineers), electrical distribution equipment (smart infrastructure), and railway equipment (mobility), each contributing between 10% and 40% of group profits. Each of these businesses have strong product portfolios to compete in long-term attractive end markets. Digital industries will benefit from industrial complexes increasingly using productivity-enhancing software and automation hardware. Siemens mobility and smart infrastructure have exposure to "green transformation." Siemens mobility is well placed to benefit from further electrification of European rail and eventually hydrogen trains. Smart infrastructure has a portfolio of products and software, like smart grid software, and connected low- and medium-voltage products, critical in power distribution and building infrastructure upgrades necessary to support growing, but volatile, renewables power supply and electric vehicle charging. However, in terms of profit contribution, digital industries and healthineers combined generate 80% of the group total.