On Nov 13, we maintained a Neutral recommendation on Siemens Aktiengesellschaft (SI). While the German industrial conglomerate’s long-term fundamentals appear solid, we remain on the sidelines due to its soft top- and bottom-line performance in the recent quarter.
Why the Neutral Recommendation?
On Nov 7, 2013, Siemens announced lackluster fourth-quarter fiscal 2013 results with net earnings of $1.56 per share (€1.18 per share) missing the Zacks Consensus Estimate of $1.61 by 3.1%. The fourth-quarter earnings also decreased 8.5% year over year due to a charge associated with “Siemens 2014” program.
Total revenue in the reported quarter decreased 1.3% year over year primarily due to drop in revenues from the Energy and Industry segments. On a regional basis, revenues declined significantly in the Americas owing to weak wind power markets in the U.S. However, the reported quarterly revenues exceeded the Zacks Consensus Estimate of $27.1 billion by 3.7%.
Some estimates were revised downwards following the earnings miss. The Zacks Consensus Estimate for fiscal 2014 declined around half a percent over the last 7 days. However, for fiscal 2015, the Zacks Consensus Estimate increased 1% to $11.27 over the last 7 days.
Also, the company’s failed acquisitions in the current fiscal year and significantly lowered orders in Europe/CAME and the Americas are a cause of concern. Moreover, its exposure to currency and interest rate risks as well as widening credit spreads might negatively affect earnings.
However, we appreciate the “Siemens 2014” program of the company which keeps our recommendation balanced. The “Siemens 2014” restructuring program, launched in fiscal 2013, targets sustainable value creation. The program’s target is to raise the Total Sectors profit by at least 12% by fiscal 2014. The program is expected to boost long-term growth. Moreover, Siemens is a global leader in most of its key businesses, including industrial automation, power generation, medical equipment and transportation.
Management’s favorable outlook for recovery in short-cycle businesses in the latter half of fiscal 2014 and a forecast of at least 15% rise in earnings for fiscal 2014 are also positives.
Siemens presently has a Zacks Rank #2 (Buy). Other players in the industry worth a look include Garmin Ltd. (GRMN), Koninklijke Philips N.V (PHG) and Mistras Group, Inc. (MG), each carrying a Zacks Rank #2 (Buy).