Aniket Pujari
Spun off from its parent company during the Covid-19 pandemic, Siemens Energy has been on a roller coaster over the past 18 months — from a near-death drop to a dizzying climb of over 310% this year. Yet, despite the gains, investors and analysts say the shares are set to rise further still. The big decline Until late last year, the stock had been on a downward trend since its market debut in 2020. ENRN-DE 5Y line The company, which makes more than two-thirds of its revenue from selling gas turbines and grid technologies, had embarked on a strategy of growth at all costs in an era of low interest rates, producing bigger wind turbines and pursuing ever larger projects. Investors were backing companies in the clean energy space, and the Munich-headquartered company was a perfect fit. With regulatory, political and macroeconomic tailwinds behind it, Siemens Energy began raising the average selling price of its turbines to improve margins, which were in the red at the time. In August 2022, Chief Executive Christian Bruch even boasted on a call to analysts that margin expansion had helped swell the order book of its Gamesa subsidiary — which manufactures wind turbines — to 34 billion euros ($36 billion). “The expectation was we’d now have revenue growth and margin expansion for all,” said Philip Buller, equity analyst at Berenberg. It was then, however, that the company came up against the first of many hurdles: inflation. Despite the steady increase in sale prices, the cost of manufacturing had risen even faster. To make matters worse, Siemens Energy, alongside its industry peers, had signed large contracts for years in the future at prices that were not inflation-linked. The company is now on the hook — even to this day — to deliver these contracts below the cost of production or face severe penalties if it walks away. Then, when the entire sector was down, Siemens Energy got hit with another blow. In June 2023, the company withdrew its profit forecast due to a substantial increase in the failure rates of its onshore wind turbine components. Its Gamesa subsidiary was now expected to incur “significantly higher costs” than previously assumed. Gamesa would not only have to pay to fix the problems on its existing onshore turbine fleet, but also compensate wind farm operators for any financial loss if the turbines stopped producing power. The situation was made worse by the fact that Siemens Energy, a month earlier, had completed the purchase of the minority stake in Gamesa that it did not already own for about 4 billion euros. In the days that followed, analysts from JPMorgan, Jefferies, Citi, UBS and Santander downgraded the stock, and the share price declined by more than 70% between the profit warning in June 2023 and the end of October. Ingo Speich, head of sustainability and corporate governance at Deka Investment , the fifteenth largest shareholder in Siemens Energy said “the timing could have been better” of the Gamesa purchase and subsequent bad news. Put simply, investors were unimpressed at the loss of value. “We were disappointed with the management at this time,” Speich added. $1 sale could have been worth $10 billion upside The issues at Gamesa meant the unit was being valued between zero and negative 12 billion euros — dragging the overall valuation of Siemens Energy down with it. “We were arguing at the time, even despite how bad Gamesa was, if they sold it for $1 there would potentially be 10 billion of valuation upside to Siemens energy’s stock,” Berenberg’s Buller said to illustrate the negative value attached to Gamesa. Buller estimates the division is still valued between negative six and negative 20 billion euros as the unit is expected to keep making losses in the years to come as it rolls out fixes to nearly 3,000 wind turbines across the world. One silver lining, according to Buller, could be the lower cost of future maintenance after Siemens Energy fixes the current problems. The analyst expects shares to rise by 40% to 70 euros over the next 12 months. Opportunity amid the downturn Other investors took a different view of Siemens Energy amid the Gamesta troubles. Alec Cutler, fund manager of the Orbis Global Balanced fund , a top 20 Siemens Energy shareholder, believed the stock had collapsed below its fair value and increased his stake. “All our analysis from the very beginning was done assuming Siemens Gamesa was worth nothing,” Cutler told CNBC Pro. Whatever the problems Gamesa had it “had to be really, really bad to offset one of the world’s largest gas turbine manufacturers and one of the world’s largest switching and transformer businesses,” Cutler added, saying the crisis was overblown. Even amid the stock’s sell-off, Deka Investments’ Speich suggested the company was worth more than its market value. The investment firm’s DekaFonds increased its stake in Siemens Energy by more than 65% as the stock fell. “At the time, we felt that the market reaction was exaggerated. We looked closely at the figures and spoke to the company,” Speich told CNBC. He added that Gamesa continues to have “major problems, but these are under control. The management must now deliver. There are no more excuses.” The ignored subsidiaries While investors were focused on the loss-leading Gamesa subsidiary, Siemens Energy’s other divisions — gas services, grid technologies and transformation of industries — outperformed analysts’ and investors’ expectations. One key driver of growth has been the sudden surge in demand for electricity globally, driven by the need to build new data centers for artificial intelligence applications. In addition, the transition to low-carbon energy generation — wind or solar — has propelled the build-out of the electrical grid at a rate much faster than previously anticipated. That means Siemens Energy’s grid technologies division is expected to become the biggest money spinner of its four divisions in 2025, according to Gael de-Bray, European head of capital goods research at Deutsche Bank. The subsidiary’s order backlog now stands at 33 billion euros, 43% higher than last year. The demand is so strong that customers are even forking out a reservation fee now to take delivery of high-power transformers in 2030. Siemens Energy’s new U.S. factory, which isn’t ready yet, has sold out its manufacturing capacity for the next two years. “Combined with the increasing share of renewables, growth in installed power capacity should be even stronger, driving significant investments in infrastructure, especially in grid capacity,” said de-Bray in a note to clients. “The rising demand related to the buildout of data centers could provide additional upside of 10-15%.” The analyst expects the stock to rise another 10% from current levels over the next 12 months. The outside influence Another clear factor behind the rise in Siemens Energy shares this year has been the spin-off and stock market listing of its American competitor GE Vernova . Siemens Energy’s subsidiaries face competitors globally. Vestas Wind Systems and Nordex compete with Gamesa; Switzerland’s ABB and South Korea’s HD Hyundai also make grid and turbine technologies. Yet, none competed with all of Siemens Energy’s subsidiaries under one parent, until GE Vernova’s stock market debut. The listing provided analysts and investors with new data points to better value Siemens Energy. GE Vernova was spun out of U.S. conglomerate General Electric and floated on the New York Stock Exchange in March, similar to Siemens Energy’s birth from Siemens AG . Vernova also produces wind, gas, nuclear and hydro turbines, as well as grid technologies. The U.S. company’s shares have risen more than 160% this year, also in part due to the clean energy transition and AI data center demand. GEV 5Y line “If Vernova is right about the profit levels that they see from the demand, why [wouldn’t] Siemens be able to execute on it as well?” said Chris Smith, fund manager of Artisan Focus Fund, which owns stakes in both GE Vernova and Siemens Energy. He believes the German company is currently undervalued relative to GE Vernova by at least 50% despite having similar expected profit levels in 2026. Smith said that Siemens Energy’s share price downtrend, ever since its IPO, has perhaps contributed to some “hesitancy” from investors in Europe to invest in the stock. Siemens Energy’s share price move this year has also been in spite of the lackluster performance in its wind turbine division. However, investors believe that, as time goes by and Gamesa starts to turn a profit, the stock is likely to re-rate higher. “As we look out three to five years, Siemens Gamesa could be an absolute gem for them, and wouldn’t that be a nice thing?” added Orbis Investment’s Cutler.
