Deutsche Bank (ETR:DBKGn) has revised its price target for Spirax-Sarco Engineering (LON:SPX: LN) (OTC: SPXSY), adjusting it downward to GBP75.25 from the previous GBP97.50. The firm has retained its Hold rating on the stock. The adjustment reflects the analyst's revised expectations for the company's financial performance in the coming years.
The changes in the forecast include a reduction in the estimated EBITA margin by 90 basis points and an 8% decrease in earnings per share (EPS) for the fiscal year 2024. The analyst anticipates a more gradual progression in the following years, particularly concerning profit margins.
For fiscal year 2025, the margin is expected to decrease by 160 basis points with a 13% drop in EPS, and for the fiscal year 2026, a reduction of 180 basis points in margin accompanied by a 16% decline in EPS is projected.
The analyst's previous margin estimate of 20.9% for fiscal year 2024 has now been deferred to fiscal year 2026. Acknowledging that their forecast of a roughly 60 basis points margin increase for the fiscal year 2026 may be conservative, the analyst cites the company's execution path for the Emission Trading System (ETS) and the potential for more than 10% market growth in Waste Management (NYSE:WM) as factors that could influence the outcome.
Deutsche Bank also commented on the medium-term ambitions of Spirax-Sarco, which aim for a 22-23% margin within the next 3 to 5 years. However, due to a combination of recent earnings momentum and the new outlook for more modest margin improvements, the analyst has lowered the premium relative to the sector to 60%, down from the 10-year average of approximately 70%. This revised premium corresponds to a December 2025 price-to-earnings ratio (PER) of 24 times, aligning with the current premium of 57%.
InvestingPro Insights
Amidst the revisions to Spirax-Sarco Engineering's financial outlook by Deutsche Bank, real-time data from InvestingPro provides additional context for investors. As of the last twelve months ending Q2 2024, Spirax-Sarco has a market capitalization of $7.07 billion and operates with a Price/Earnings (P/E) ratio of 28.28, reflecting a market that values the company's earnings relatively highly. Despite a slight decrease in revenue growth by -3.07%, the company boasts an impressive gross profit margin of 76.12%, underscoring its ability to maintain profitability.
InvestingPro Tips highlight that Spirax-Sarco has raised its dividend for 8 consecutive years and has maintained dividend payments for 33 consecutive years, signaling a commitment to shareholder returns. Additionally, the company's liquid assets exceed short-term obligations, indicating a strong liquidity position. For investors considering the company's valuation, it's worth noting that Spirax-Sarco is trading near its 52-week low and at a high Price/Book multiple of 4.77. These metrics, coupled with the analyst's predictions, may influence investment decisions.
For a more comprehensive analysis, investors can explore additional InvestingPro Tips for Spirax-Sarco Engineering, which are available at https://www.investing.com/pro/SPXSY.
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