Siemens Energy Q2 pre-release: Grid Technologies progressing ahead of plan, free cash flow significantly above expectations

Overview

This report comments on Siemens Energy's pre-release results for fiscal Q2 2026. Ahead of the official earnings release, the company raised FY26 guidance for revenue growth, margin, and pre-tax free cash flow, with the biggest highlight coming from the Grid Technologies business performing significantly ahead of plan. Goldman Sachs believes that although group profit was slightly below consensus expectations, the strong cash flow and order performance are enough to show that improving underlying demand and execution are continuing.

Core views

Goldman Sachs' core view is that Siemens Energy is benefiting from grid capital expenditure, energy security demand, improving profitability in gas services, and greater focus in offshore wind. Grid Technologies has already reached its FY28 margin target two years ahead of schedule, and the significant increase in free cash flow guidance also improves visibility on future capital returns. Goldman Sachs continues to believe that improved execution will help narrow the valuation gap versus GE Vernova; the report states that GE Vernova is trading at about 22x 2028E EBITDA, while Siemens Energy is at a discount of more than 50%.

Analysis framework

The report analyzes the Q2 pre-release data together with company-compiled consensus expectations, changes in segment guidance, order and cash flow performance, peer valuation comparisons, and the SOTP valuation framework. Goldman Sachs also uses Gas & Power peer EV/EBITA multiples, Siemens Gamesa's DCF valuation, and medium- to long-term FY2030 earnings and cash flow forecasts to support the target price.

Methodology notes

• Valuation methodsSOTP

  sum-of-the-parts valuation

  Goldman Sachs uses an SOTP valuation approach for Siemens Energy, with Gas & Power based on peer CY27E EV/EBITA multiples and Siemens Gamesa valued using DCF.

• Valuation methodsDCF

  discounted cash flow

  The report uses the DCF method for Siemens Gamesa and assumes a post-tax WACC of 7.2%.

• factor_profileGS Factor Profile

  growth, financial returns, valuation multiples, and composite factor profile

  Goldman Sachs' factor profile compares the stock with the market and industry peers across growth, financial returns, valuation multiples, and composite indicators.

• corporate_actionM&A Rank

  acquisition probability ranking

  The report discloses Siemens Energy's M&A Rank as 3, indicating a low probability of being acquired and typically no material impact on the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Siemens Energy ENR1N.DE

  Covered company in the report; Buy rating maintained

  Strengths

  FY26 free cash flow guidance was significantly raised, Grid Technologies reached its FY28 margin target early, order growth is strong, and grid capital expenditure and energy security demand provide demand tailwinds.

  Weaknesses

  Q2 revenue and pre-special items profit were below company-compiled consensus expectations, and Siemens Gamesa still faces quality and execution risks.

  Comparison

  The report believes improved execution will help narrow the valuation gap with GE Vernova; GE Vernova is trading at about 22x 2028E EBITDA, while Siemens Energy still has a significant discount.

  Risks

  Onshore turbine quality issues, competition and pricing pressure, cost savings falling short of expectations, macroeconomic weakness, and foreign exchange and material cost headwinds.

• Grid Technologies

  Core growth driver and source of guidance upgrade for Siemens Energy

  Strengths

  FY26 revenue growth guidance was raised to 25%-27%, and margin guidance to 18%-20%, reaching the FY28 margin target two years early.

  Weaknesses

  High growth and high margins require continued execution and order conversion support.

  Comparison

  Compared with the group's other segments, the EBITA upgrade this time mainly came from Grid Technologies.

  Risks

  If the pace of grid investment slows or execution and delivery fall short of expectations, growth and margin realization could be affected.

• GE Vernova

  Valuation and industry comparison peer

  Strengths

  Its results also show improving market conditions for gas turbines.

  Weaknesses

  The report does not provide a full fundamental analysis of it.

  Comparison

  Goldman Sachs believes Siemens Energy still trades at a significant valuation discount relative to GE Vernova, and improved execution will help narrow that discount.

  Risks

  If peer valuations decline or industry conditions reverse, the scope for Siemens Energy's valuation re-rating may be reduced.

Key data

• 12-month target price€185Goldman Sachs maintains its Buy rating, implying 3.7% upside from the current price of €178.42.
• FY26 pre-tax free cash flow guidanceabout €8bnPrevious guidance was €4bn-€5bn, which the report considers a significant upgrade.
• FY26 group comparable revenue growth guidance14%-16%Previously 11%-13%.
• FY26 group pre-special items margin guidance10%-12%Previously 9%-11%.
• Grid Technologies FY26 revenue growth guidance25%-27%Previously 19%-21%, and the main source of this group guidance upgrade.
• Grid Technologies FY26 pre-special items margin guidance18%-20%Previously 16%-18%, equivalent to reaching the FY28 margin target two years early.
• Q2 revenue€10,294mBelow company-compiled consensus expectations of €10,841m, but up 8.9% year-on-year on a comparable basis.
• Q2 pre-special items profit€1,164mBelow consensus expectations of €1,224m; margin was 11.3%, in line with consensus expectations.
• Q2 pre-tax free cash flow€1,975mAbove €1,390m in the same period last year.
• Q2 orders€17,749mAbove consensus expectations of €15,635m, with comparable growth of 29.5%.
• Valuation comparisonabout 7x 2030E EV/EBITDAThe report believes that as earnings and cash flow improve further by 2030, valuation visibility and growth prospects will strengthen.
• Potential shareholder returnsmore than €20bnGoldman Sachs believes the company has potential for more than €20bn of capital returns by the end of this decade.

Impact & implications

In the short term, the slight miss on Q2 profit versus consensus may be offset by better-than-expected orders and cash flow, as well as the FY26 guidance upgrade. In the medium term, Grid Technologies reaching its FY28 margin target early will strengthen market confidence in the growth and margin improvement of the grid business. In the long term, if Gas Services profitability, Grid Technologies revenue growth, and Siemens Gamesa's improvement progress as planned, Siemens Energy's cash flow and shareholder return capacity could rise further and drive a narrowing valuation discount versus GE Vernova.

Risks

• Failure to manage quality issues in certain onshore turbine models.
• Intensifying competition and rising pricing pressure.
• Failure to deliver cost savings.
• Macroeconomic weakness affecting demand and order conversion.
• Foreign exchange and material costs creating headwinds.
• If execution on Grid Technologies' high-growth and high-margin targets falls short of expectations, the valuation re-rating thesis could weaken.

What to watch

• The full disclosure of revenue, profit, orders, and cash flow in the official Q2 results on May 12.
• The delivery pace of the FY26 pre-tax free cash flow guidance of around €8bn.
• Whether Grid Technologies can continue to sustain the 18%-20% margin range.
• Improvement in OEM volumes and service profitability within Gas Services.
• Progress on Siemens Gamesa's quality issues, cost control, and offshore wind focus strategy.
• Whether the company initiates or expands shareholder return plans.
• Whether the valuation discount versus GE Vernova on 2028E EV/EBITDA continues to narrow.