Alexander Belikov
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Alexander Belikov in J.T. Marlin,

Siemens – German quality for the lower price

Current price:102.7USD

Target price:125USD
Our opinion: upside potential
Street’s opinion: upside potential

Siemens is a company you do not expect finding trading cheap. It is a big conglomerate that operates in almost every country in the world, while most part of its revenue is protected against emerging markets trends. The company is oriented on giving profits to investors, while maintaining bleeding-edge technologies.

We argue that current opinion about German technology companies is not in their favor. The diselgate, while does not anything common with names like Siemens, affects the whole industry. Siemens does have some scandals of its own, with briberies in Argentina being the last one, although the impact of them is hugely in short-term, we do not believe that they are hurting the Siemens brand image and prospects. In addition, we saw uncertainty with European economy outlook vs US economy. In the last years, European economy underperformed its peers, so it left an aftertaste with investors about key driving names.

Looking at the chart, we see a huge downtrend in the past year with recovery recently. We think there are reasons to believe we already saw the bottom, and now it is time to set up a position and move up with the stock.

We believe the stock is currently heavily undervalued against the sector. Looking at the current multiples, the stock is valued at p/e 15 against the industry average of 18. Although the picture with 1-forwards is less beautiful, it is pretty much the same with more distant forecasts. Moreover, the stock is secured with dividends, with more recent yield forecasts reaching 4%. It is the level where dividend-seekers kick in, so there is not much of a downside risk here.

Siemens is also interesting in the long-term perspective. Giving you a proven financial performance, and practice of giving out returns to shareholders with ~50% payout ratio. Although ROI is most likely to stay in the range of 7.0-7.5%, it is still higher than WACC of around 7%. If you are not searching for a gem, but for a stable company valued at its price, Siemens may be your choice.

Summing up, we believe investing in Siemens is a good idea, especially in the long term. We set our target price at 125USD, a historical level.