Raising Our Tenaris Fair Value as Global Tubes Demand and Pricing Remain Strong in 2023

After incorporating Tenaris’ TEN full results for fiscal 2022, we’re raising our fair value estimate to $32 (EUR 15) per share from $29 (EUR 15). Our no-moat and stable moat trend ratings are unchanged following results. The firm had an exceptional fourth quarter, posting quarterly records for revenue and profitability. Total sales in 2022 were $11.8 billion, nearly doubling year over year. The firm also maintained impressive profitability with a firmwide EBITDA margin of 35% compared with 37% in 2022, and a five-year historical average of 21%.

Extremely strong demand for oil country tubular goods around the world has supported very favorable pricing dynamics for Tenaris. Global tubes demand reached about 15 million tons in 2022 with room for further growth in 2023. Management indicated tubes demand could reach 16 million tons (close to 2014 levels) this year, supported by robust drilling activity in North America and steadily expanding drilling activity in international markets. We therefore estimate sales would increase about 26% year over year and forecast revenue growth averaging 2% per year through 2027—assuming currently elevated tubes pricing normalizes over the next five years.

We also estimate slightly higher operating margins moving forward, averaging about 19% through 2026 compared with our prior estimate of 17%. Our forecast incorporates continued benefits from elevated utilization rates. Effective capacity utilization was 62% in 2022, returning to 2018 levels—a feat made more impressive when recognizing that Tenaris has added nearly 1.5 billion tons of effective capacity since 2018. We also expect continued tailwinds from favorable tubes pricing in the near term, though we expect this will abate over the next several years as the supply/demand imbalance levels out. By our estimate, the firmwide EBITDA margin will remain above 30% in 2023, but will average in the low- to mid-20s through 2027.