A Manufacturing Giant on Sale
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Due to the European financial crisis and the subsequent sell-off in European shares, there are now a number of high quality stocks in the region available at a discount. Siemens (NYSE: SI) is a good example of one of these high value European stocks that looks cheap at current prices. The company is one of the world’s leading electronics manufacturers, and is active in the fields of industry, energy and healthcare. This is a stock I wouldn’t mind owning ten or twenty years from now, and current prices might be an attractive entry point. While many rightly compare investing in Europe at the moment as trying to catch falling knives, one could also argue that now is the time to load up on big, high value brands.
According to CNBC, Siemens currently trades at 13.65x earnings compared to an industry average of 15x and a sector average of 16.6x. Siemens reported an EPS of $10.76 over 2011, a 9.84% growth in earnings compared to an industry average of 5.94%. The stock has a good ROE of 21.24% and a decent operating margin of 10.6%. It has a manageable LT debt to equity ratio of 45.3 and is trading at 1.68 to book. For comparison, General Electric (NYSE: GE) trades at 16.6x earnings, 1.78 to book and reported an EPS of $1.37. Emerson Electronics (NYSE: EMR) has a P/E of 14.18, a price to book of 3.16 and reported a 2011 EPS of $3.24. Based on these valuations, I would say Siemens looks cheap compared to American competitors in the sector.
In terms of corporate strategy and outlook, things look pretty bright for Siemens. S&P maintains an A+ long term rating on the firm with a positive outlook. Additionally, the company remains involved in sustainable energy initiatives such as solar panel projects in Kenya. The large-scale restructuring of the company aimed at improving transparency and profitability is almost complete and seems to be paying off. Revenue increased in all divisions in the second quarter, coming in at a 9% increase year on year and beating the consensus by 4%. However, Siemens did adjust the outlook for 2012 to about 5.3 billion Euros down from 6 billion. Lower sales in Europe and China mainly are to blame, but the market may have priced this in already as the firm has dropped hints about this weakness before. All in all the company remains well positioned for profitability in the remainder of 2012 with emerging markets good for about a third of revenue.
Siemens does face some difficulties in the current market environment. Slowing growth across the globe continues to put pressure on margins and may affect sales in the future. Especially slowing demand in Asia would be dangerous, as a hard landing in China would adversely affect sales in the capital goods sector. Reduced consumer spending in the Eurozone and the European financial is another problem that doesn’t seem to be going away any time soon. Additionally, global currency fluctuations affect the company’s profits and the value of the stock for investors outside the Eurozone. Finally, the stock market in Europe is indeed highly volatile at the moment, and with a beta of about 1.57 the stock is not a low volatility play. Investors should perform due diligence in appraising the risks of this stock.
To wrap it up, Siemens looks pretty good from a fundamental point of view. The company is a worldwide market leader in electronics manufacturing and is currently priced very attractively due to the ongoing European debt crisis. While the company faces some challenges, it seems well positioned for profit in the remainder of the year. I believe Siemens is worth more than its current stock price and is a good long term bet.
DUJames has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Emerson Electric Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.