Reiterate Overweight on Siemens Energy: Earnings upgrades and low valuation remain attractive, but three aggressive bull-case assumptions may be overextended

Overview

While maintaining its Overweight view on Siemens Energy, the report examines three more aggressive bull arguments circulating in the market. Morgan Stanley concludes that consensus earnings may still be revised upward and valuation remains low, but assumptions for gas new-equipment margins, revenue, and Grid business valuation should not be based on excessively optimistic terminal-value and capacity assumptions.

Core views

Morgan Stanley continues to view earnings momentum as central to the Siemens Energy share-price thesis and reiterates its Overweight rating, €195 price target, and 27% upside. Its base case assumes the company's 2030 EBIT could be 6% above consensus, while its published bull case is 28% higher. The forecast table shows revenue rising from €39,077mn in FY25 to €43,778mn in FY26e, €49,623mn in FY27e, and €55,002mn in FY28e; EBIT rises over the same period from €2,355mn to €5,464mn, €7,689mn, and €9,781mn, while EPS increases from €1.78 to €4.67, €6.80, and €8.88. The report also rejects a simplistic comparison between the company and commercial aerospace engine manufacturers: by 2030, the gas turbine aftermarket is expected to contribute only around 22% of Group EBIT, while earnings volatility and uncertainty around terminal margins will be greater in the next cycle. Nevertheless, the report believes valuation is too low and consensus earnings still need to rise, leaving the risk-reward skewed positively through year-end. The first debate is whether gas new-equipment margins can reach more than 40% by 2030. The aggressive view argues that pricing for new gas turbines has doubled since 2022 while cost inflation has been far lower than the increase in prices, potentially allowing margins to exceed 40%; Morgan Stanley's 2030 forecast is 25%. The report tests this thesis using backlog margins: at the end of 2025, the Gas Services backlog was €54bn, comprising €13bn of new equipment and €41bn of services; new-equipment orders reached €9.7bn in 2025, but the margin on €4.2bn of new-equipment revenue delivered that year was still approximately 2%. The disclosed margin on the new-equipment backlog improved by only around 500 basis points in 2025 and by approximately 1,300 basis points cumulatively from 2022 to 2025. Morgan Stanley argues that if the gross-margin step-up on the latest orders were sufficient to support margins above 40% in 2030, the large volume of high-priced orders in 2025 should have lifted backlog margins more materially. This conclusion could be disproved if orders signed in 2026 produce a significant step-change in margins; because the company discloses backlog margins only once a year, this will be an important validation point. The second debate concerns deriving 2030 gas new-equipment revenue from market power-plant construction costs. The aggressive market calculation starts with combined-cycle gas power-plant costs exceeding $3,000/kW and assumes the gas turbine accounts for roughly one-third, or $1,000/kW. On this basis, it argues that consensus-implied 2030 new-equipment revenue of about €13.5bn is clearly too low, with some buy-side estimates at no less than €15bn. Morgan Stanley acknowledges that consensus may be slightly low but argues that revenue must be based on Siemens Energy's actual order pricing. It expects approximately 49GW of combined-cycle capacity and €21.8bn of new-equipment orders in 2026, equivalent to around €445/kW. Assuming these orders are delivered primarily in 2029–2030 and the company plans to deliver approximately 30GW in 2030, revenue would be about €13.4bn. New orders over the next 6–9 months could still enter the 2030 delivery schedule, but the report argues that pricing from selected high-cost power plants cannot be applied uniformly to all deliveries. GE Vernova's per-kilowatt pricing is higher than Siemens Energy's, which the report attributes primarily to its greater proportion of US orders; the two therefore should not be compared mechanically. The third debate is whether the Grid business should receive the same valuation as ABB. ABB trades at 16.1x 2028e EV/EBITA, while Morgan Stanley assigns a 15x multiple to Siemens Energy's Grid business in its segment valuation. Siemens Energy's Grid business is forecast to achieve a 24% margin in 2028, above ABB Group's 22.3%, and its substantial order backlog provides visibility into EBITA growth in 2029–2030; the report also forecasts a 25% margin for the business in 2030. However, margins in the high-voltage grid industry have historically been highly volatile, and ABB previously sold its Power Grids business to Hitachi because of project risks and competitive issues. The report notes that even if Siemens Energy's Grid margin were halved from the 24% forecast for 2028, it would still not be poor by historical standards, indicating that the current high margin should not be capitalized directly into perpetuity. The company's 2026 Grid revenue base is approximately €14bn, and the report also rejects the view that it could double again by 2030 because existing capacity is insufficient to support that delivery scale. Reverse-engineering the current share price through a DCF implies a Group terminal margin of approximately 16%, comprising around 20% for gas and 16% for Grid; terminal-margin risk will constrain the valuation multiples investors are willing to assign to 2028 and 2030 earnings. The price target is derived by combining a €216 segment valuation with a €175 DCF valuation, the latter using a 19% Group terminal margin from 2032 onward. The detailed valuation methodology benchmarks 2028 Gas Services, Grid Technologies, and Transformation of Industries against GE Vernova, Mitsubishi, and Hitachi, with segment EV/EBIT multiples averaging approximately 18x; the DCF uses a 7.8% WACC and a 2% perpetual growth rate. Relative valuation remains an important pillar of the Overweight view. Siemens Energy trades at 12x 2028e EV/EBITA, below the European capital goods sector's 12.7x, while the report expects its EBITA to grow by more than 20% annually in 2029 and 2030. Wartsila is rated Underweight and trades at 12.3x; the report believes its portfolio, margin potential, and Marine business attractiveness are all inferior to Siemens Energy's. GE Vernova trades at 21.7x, while the report's front page uses 21.6x; Siemens Energy's relative discount is approximately 45%, within the 25%–50% discount range observed over the past 12 months. Morgan Stanley acknowledges that GE Vernova deserves a premium because it has greater visibility into gas customer commitments, potentially more aggressive service pricing, a higher proportion of US gas orders, a more shareholder-friendly wind strategy, and faster growth in Grid exposure to hyperscale data-center customers following the Prolec acquisition. However, the report believes a reasonable discount should be closer to 25%, using Schneider's approximately 25% discount to Eaton on 2027 EV/EBITA as a reference. Recent orders and catalysts continue to support the core thesis. Siemens Energy expects customer commitments to reach the upper end of the 90–100GW range by fiscal year-end; the latest 8GW increase includes 6GW delivered during the quarter, leading Morgan Stanley to estimate approximately 9GW of firm order intake in 4Q26. The report maintains its Overweight rating through the release of FY26 full-year results and new 2030 targets on November 11, but emphasizes that the true points requiring validation are whether orders can translate into higher backlog margins, revenue, and free cash flow, rather than relying solely on market construction costs or long-term terminal-value narratives.

Analysis framework

The report first uses earnings forecasts, the price target, and near-term catalysts to explain the basis for maintaining its Overweight rating, then tests three aggressive bull arguments circulating in the market one by one. For gas margins, it uses historical delivery margins and changes in backlog margins to assess pricing pass-through; for revenue, it divides actual order value by capacity to calculate the price per kilowatt and then multiplies it by expected delivery capacity; for Grid, it combines ABB peer multiples, historical margin volatility, capacity constraints, and DCF terminal-value assumptions to determine a reasonable valuation. Finally, it cross-checks relative valuation using the EV/EBITA multiples of European capital goods companies, Wartsila, and GE Vernova.

Methodology notes

• Valuation MethodSOTP Segment Valuation

  2028 sum-of-the-parts valuation

  The report applies peer multiples from companies including GE Vernova, Mitsubishi, and Hitachi to Gas Services, Grid Technologies, and Transformation of Industries, respectively, with segment EV/EBIT multiples averaging approximately 18x, resulting in a €216 SOTP valuation.

• Valuation MethodDCF Discounted Cash Flow

  Discounted cash flow and terminal-margin assessment

  The DCF uses a 7.8% WACC and a 2% perpetual growth rate, producing a €175 valuation; the report also constructs the price target using a 19% Group terminal margin from 2032 onward and reverse-engineers an approximately 16% Group terminal margin implied by the current share price.

• Valuation Method

  EV/EBITA and EV/EBIT peer-multiple comparison

  The report compares Siemens Energy's overall and segment multiples with those of European capital goods companies, GE Vernova, ABB, and Wartsila to assess whether the current discount is consistent with growth, business quality, and terminal-value risk.

• Industry/Sector Analysis FrameworkPrice-Volume Decomposition

  Order price per kilowatt multiplied by delivery capacity

  The report calculates €445/kW from €21.8bn of orders and approximately 49GW of capacity in 2026, then multiplies it by approximately 30GW of delivery capacity in 2030 to derive around €13.4bn of new-equipment revenue.

• Industry/Sector Analysis Framework

  Backlog margin bridge

  The report compares newly signed orders, the existing order backlog, and margins on delivered projects to determine whether high-priced orders can gradually translate into new-equipment profitability by 2030.

Asset mapping & comparison

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

• Siemens Energy AG (ENR1n.DE)

  The report's primary subject; Morgan Stanley reiterates its Overweight rating and €195 price target.

  Strengths

  Consensus earnings still have room for upward revisions, the order backlog supports growth in the Grid business, EBITA is expected to grow by more than 20% annually in 2029–2030, and the 2028 valuation is below those of European capital goods companies and GE Vernova.

  Weaknesses

  The gas aftermarket is expected to account for only around 22% of Group EBIT by 2030, gas and high-voltage grid margins are cyclically volatile, and Grid capacity constrains further expansion.

  Comparison

  2028e EV/EBITA is 12x, below European capital goods at 12.7x, Wartsila at 12.3x, and GE Vernova at 21.7x; the Grid segment's 15x multiple is slightly below ABB's 16.1x.

  Risks

  Delays in contract awards, execution risks on large power-generation projects and SGRE projects, and a faster shift from coal to renewable energy rather than natural gas.

• GE Vernova (GEV.US)

  The principal US peer used to compare gas turbine pricing, margins, and Siemens Energy's overall valuation.

  Strengths

  Greater visibility into gas customer commitments, potentially more aggressive service pricing, a higher proportion of US gas orders, a wind strategy more favorably viewed by shareholders, and faster growth in Grid exposure to hyperscale data-center customers following the Prolec acquisition.

  Comparison

  2028e EV/EBITA is 21.7x, with Siemens Energy trading at an approximately 45% discount; the report believes a reasonable discount should be closer to 25%.

• ABB (ABBN.S)

  Its valuation and historical Power Grids business are used to assess whether Siemens Energy's Grid segment should receive the same multiple.

  Strengths

  2028 EV/EBITA is 16.1x, and the Group margin is forecast at 22.3%.

  Weaknesses

  ABB previously sold its Power Grids business because of project risks and competitive issues, reflecting the historical volatility and project-based nature of the high-voltage grid business.

  Comparison

  Siemens Energy Grid is valued at 15x and has a forecast 2028 margin of 24%, above ABB Group's 22.3%.

• Wartsila Oyj Abp (WRT1V.HE)

  A European capital goods relative-valuation reference on which Morgan Stanley has an Underweight rating.

  Weaknesses

  The report considers its portfolio, margin potential, and Marine business attractiveness inferior to Siemens Energy's.

  Comparison

  Wartsila trades at 12.3x 2028e EV/EBITA, slightly above Siemens Energy's 12x.

  Risks

  Pricing pressure caused by overcapacity in the Energy market and execution risks associated with its sizable order backlog.

Key data

• Rating and price targetOverweight; €195Overweight reiterated; 27% upside from the €153.36 closing price on August 21, 2026
• 2030 EBIT versus consensusBase case 6% higher; bull case 28% higherPotential earnings upgrades are the primary basis for maintaining the Overweight rating
• FY25–FY28e revenue€39,077mn; €43,778mn; €49,623mn; €55,002mnCorresponding to FY25, FY26e, FY27e, and FY28e
• FY25–FY28e EBIT€2,355mn; €5,464mn; €7,689mn; €9,781mnCorresponding to FY25, FY26e, FY27e, and FY28e
• FY25–FY28e EPS€1.78; €4.67; €6.80; €8.88Morgan Stanley ModelWare estimates
• Gas Services backlog at year-end 2025€54bnComprising €13bn of new equipment and €41bn of services
• 2025 gas new-equipment orders and revenueOrders €9.7bn; revenue €4.2bnNew-equipment margin was approximately 2% that year
• Improvement in gas new-equipment backlog marginApproximately +500bps in 2025; approximately +1300bps from 2022–2025The report believes the improvement is insufficient to support a margin above 40% in 2030
• 2030 gas new-equipment marginMorgan Stanley 25%; aggressive bull case 40%+The report does not believe the existing evidence supports a scenario above 40%
• 2026 gas new-equipment ordersApproximately 49GW; €21.8bn; approximately €445/kWCalculated on combined-cycle capacity
• 2030 gas new-equipment revenueApproximately €13.4bn€445/kW multiplied by approximately 30GW of deliveries; consensus implies approximately €13.5bn, while some buy-side scenarios exceed €15bn
• ABB and Grid valuationABB 16.1x; Siemens Energy Grid 15xBoth on a 2028 EV/EBITA basis
• 2028 margin comparisonSiemens Energy Grid 24%; ABB Group 22.3%Siemens Energy Grid's forecast 2030 margin is 25%
• Grid revenue baseApproximately €14bn in 2026The report believes capacity is insufficient to support another doubling by 2030
• Price-target valuation componentsSOTP €216; DCF €175The €195 price target combines the two valuation outcomes
• DCF parametersWACC 7.8%; perpetual growth rate 2%The target valuation uses a 19% Group terminal margin from 2032 onward
• 2028e EV/EBITASiemens Energy 12x; European capital goods 12.7x; Wartsila 12.3x; GE Vernova 21.7xThe report's front page uses 21.6x for GE Vernova
• Discount to GE VernovaApproximately 45%The discount range over the past 12 months was 25%–50%; the report believes a reasonable level is closer to 25%
• Customer commitmentsUpper end of the 90–100GW range by fiscal year-endThe latest increase was 8GW, including 6GW delivered during the quarter; the report estimates approximately 9GW of firm order intake in 4Q26
• Near-term catalystNovember 11, 2026FY26 full-year results and new 2030 targets

Impact & implications

The report believes Siemens Energy can continue to be supported by upward earnings revisions, more than 20% annual EBITA growth in 2029–2030, and a relatively low valuation, but the extent of any rerating depends on whether order pricing truly translates into backlog margins, delivery revenue, and cash flow. Historical volatility, capacity limits, and terminal-margin risk in the gas and Grid businesses mean that neither the most optimistic order prices nor current high margins can simply be extrapolated in perpetuity.

Risks

• Upside risks include an accelerated shift from coal to natural gas in major markets, particularly China.
• Upside risks include greater-than-expected cost savings.
• Upside risks include favorable regulatory changes in areas such as hydrogen and wind power.
• Downside risks include delays in contract awards caused by permitting approvals, policy, or other geopolitical factors.
• Downside risks include execution risks on large power-generation projects and SGRE projects.
• Downside risks include a faster shift in the energy mix from coal to renewable energy rather than first transitioning to natural gas.
• Historical margin volatility in the gas and high-voltage grid businesses could reduce the terminal margins and valuation multiples investors are willing to accept.

What to watch

• Monitor FY26 full-year results and the company's new 2030 targets on November 11, 2026.
• Monitor whether new gas-equipment orders signed in 2026 produce a significant step-change in annual backlog margins.
• Monitor whether customer commitments reach the upper end of the 90–100GW range by fiscal year-end and whether approximately 9GW of firm order intake in 4Q26 materializes.
• Monitor how many orders over the next 6–9 months can enter the 2030 delivery schedule.
• Monitor actual order pricing per kilowatt, the approximately 30GW delivery plan for 2030, and Grid capacity expansion.