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Sandvik Remains Well-Positioned To Benefit From Cyclical Recovery in 2021; Shares Are Richly Valued

Matthew Donen, CFA Equity Analyst

Analyst Note

| Matthew Donen, CFA |

Narrow-moat Sandvik managed to deliver respectable results given the company’s exposure to highly cyclical sectors that are affected by general economic conditions. A restructuring executed prior to the coronavirus pandemic, combined with temporary cost savings, helped Sandvik maintain a healthy operating margin of 17% despite a major slowdown in global industrial manufacturing activity. We raise our fair value estimate to SEK 158 from SEK 146 to reflect a rebound in manufacturing activity combined with a lower cost base and further cost savings expected during the upcoming year, which we expect will deliver 150 basis points of margin expansion. Shares remain richly valued, trading at valuation metrics well above historical averages.

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Company Profile

Business Description

Sandvik is a manufacturer of specialized tools and mining equipment used predominantly by global mining, engineering, and automotive customers. The company’s core operations are in metal cutting and mining equipment. The company has a well-documented history, having been founded in 1862 and listed on the Nordic Exchange in Stockholm in 1901.Europe is the largest contributor to group sales at 38%, followed by North America 21%, Asia 20%, Africa/Middle East 9%, Australia 7%, and South America 5%.

Kungsbron 1, Section G, Floor 6
Stockholm, 111 22, Sweden
T +46 84561100
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 34,972