Morgan Stanley is bullish on further upside in European electrification valuations

Overview

This report focuses on electrification, data center equipment, and power-related stocks within European capital goods. The core view is that although the absolute valuations of European electrification stocks are no longer low and they have rebounded 16% from the March 30 low, they still trade at a near-historical-peak discount relative to U.S. peers, leaving room for further valuation recovery. The report is particularly positive on Schneider Electric and tactically constructive on Siemens ahead of earnings.

Core views

First, European electrification stocks still trade at about a 24% discount to U.S. data center/electrification peers, returning to a range not seen since December 2024. Second, Schneider trades at about a 15% discount to Eaton, wider than its historical average discount of about 11%, while Morgan Stanley forecasts Schneider's 2026 organic revenue growth at 10.6%, above Eaton's consensus 8.4%. Third, Schneider's EV/EBIT discount to Vertiv has reached one of the widest levels since the data center boom began, but Schneider's 2027 consensus EBIT has been raised only 3% since January 2025, versus a 48% increase for Vertiv, making future earnings expectation recovery a key variable. Fourth, Siemens trades at about a 22% discount to peer-based SOTP, and its software business is implied at close to zero value in the reverse SOTP, providing a rationale for rerating.

Analysis framework

The report mainly uses three approaches: relative valuation, historical discount comparison, and reverse SOTP. It measures sector rerating potential using the 1-year forward EV/EBIT discount of European electrification stocks versus U.S. peers; it observes single-stock discounts through relative EV/EBIT comparisons of Schneider versus Eaton and Vertiv, and Siemens versus ABB; and it applies peer multiples to Schneider's and Siemens' business segments and then reverse-engineers the implied valuation in the current share price to judge whether core businesses are undervalued.

Methodology notes

• Valuation methodsrelative valuation

  Relative valuation discount

  The report compares 1-year forward EV/EBIT of European electrification and data center equipment companies with U.S. peers, noting that European stocks currently trade at about a 24% discount, close to a historical high.

• Valuation methodssum-of-the-parts

  Reverse SOTP

  For Schneider, the report applies Vertiv's 2027 EV/EBIT multiple to its data center business and then infers the implied multiple for the non-data-center business; for Siemens, it applies peer multiples to segments such as DI hardware, DI software, Smart Infrastructure, and Mobility to infer the implied valuation of the software business.

• peer_comparisonpeer multiple comparison

  Peer multiple comparison

  The report compares valuation gaps for Schneider versus Eaton and Vertiv, Siemens versus ABB, and Siemens Energy versus GE Vernova to identify discount-recovery opportunities or overvaluation risks.

Asset mapping & comparison

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

• Schneider Electric

  Top European electrification pick, rated Overweight

  Strengths

  Higher-quality growth tied to data centers and energy management; 2026 organic revenue growth forecast is above Eaton consensus; reverse SOTP implies the non-data-center business is valued at about 10x 2027 EV/EBITA, which is not demanding.

  Weaknesses

  2027 consensus EBIT has risen only 3% since January 2025, far weaker than Vertiv's 48% upgrade, so the market may still be waiting for earnings expectations to improve.

  Comparison

  Trades at about a 15% discount to Eaton, wider than the historical discount of about 11%; the discount to Vertiv is at a wide level for the data center boom period.

  Risks

  If data center demand, 1Q26 results, or 2026 consensus growth fall short of expectations, the valuation discount may persist.

• Siemens

  Tactically bullish, rated Equal-weight

  Strengths

  About a 22% discount to theoretical SOTP; software business is implied at 0-5x 2027 EV/EBITA in the current reverse SOTP; downside risk to EPS revisions is considered limited.

  Weaknesses

  Still affected by uncertainty around the Healthineers spin-off timeline, and the rating is not Overweight.

  Comparison

  Trades at a record discount to ABB, and the report believes EPS growth differences over the next 2-3 years are not significant.

  Risks

  If the Healthineers timeline remains unclear or the group discount widens, rerating may be delayed.

• ABB

  European electrification peer and valuation benchmark, rated Equal-weight

  Strengths

  Part of the European electrification stock basket and benefits from the sector rebound and thematic momentum.

  Weaknesses

  The report does not identify it as a top pick.

  Comparison

  Used as Siemens' relative EV/EBIT comparison benchmark; Siemens' discount to ABB is at a record level.

  Risks

  If the European electrification discount cannot continue to narrow, the sector's overall rerating potential will be constrained.

• Legrand

  Member of the European electrification stock basket, rated Overweight

  Strengths

  Included in the SU, LR, ABB basket and benefits from the repair of Europe's valuation discount versus U.S. peers in electrification.

  Weaknesses

  Receives less individual discussion in the report summary than Schneider and Siemens.

  Comparison

  Together with SU and ABB forms the average valuation reference for European electrification.

  Risks

  If U.S. peers continue to significantly outperform, the European discount may persist.

• Siemens Energy AG

  Power equipment-related name, rated Overweight

  Strengths

  Currently trades at about a 40% multiple discount to GE Vernova, leaving room for valuation recovery discussion.

  Weaknesses

  The report explicitly notes a lack of order momentum in 2026.

  Comparison

  The discount to GE Vernova narrowed from about 50% at the start of the year and once reached 28% in February 2026, but has now widened back to about 40%.

  Risks

  Insufficient order momentum may limit discount narrowing and share price performance.

• Wartsila Oyj Abp

  Power sector name, rated Underweight

  Strengths

  Included in the peer group for power and energy equipment.

  Weaknesses

  Morgan Stanley believes its valuation is already too high.

  Comparison

  Compared on consensus EV/EBIT multiples alongside power and grid stocks such as GE Vernova, Caterpillar, Siemens Energy, Prysmian, and Vestas.

  Risks

  Rich valuation creates downside risk, and the report remains cautious on the stock.

Key data

• Rebound in European electrification stocks16%SU, LR, and ABB rebounded from the low on March 30, 2026.
• European electrification discount versus U.S. peers-24%European data center/electrification valuations have returned to near-historical-peak discounts relative to U.S. peers.
• Schneider discount versus Eaton-15%Below Schneider's historical average discount of about -11%.
• Schneider 2026 organic revenue growth forecast10.6%Morgan Stanley forecast, above Eaton's consensus 8.4%.
• Implied multiple for Schneider's non-data-center business10x 2027 EV/EBITAReverse SOTP indicates this part is valued conservatively.
• Vertiv 2027 consensus EBIT upgrade+48%Since January 2025; Schneider's 2027 consensus EBIT is only +3% over the same period.
• Siemens discount to theoretical SOTP-22%Has returned to around the average SOTP discount seen in 2024.
• Implied valuation of Siemens' software business0-5x 2027 EV/EBITADepends on an assumed group discount of 5% or 10%.
• Siemens Energy discount versus GE Vernovaabout 40%About 50% at the start of the year, and once narrowed to 28% in February 2026.
• Schneider Electric price€267.75Price in the disclosure table as of 04/16/2026; rating O, rating date 10/27/2025.
• Siemens price€239.60Price in the disclosure table as of 04/16/2026; rating E, rating date 10/14/2025.

Impact & implications

If the discount of European electrification stocks versus U.S. peers continues to narrow, Schneider, Siemens, and some stocks along the electrification chain may continue to outperform. For Schneider, the investment case is more about fundamental growth and discount recovery, while for Siemens it is more about the earnings window, the Healthineers spin-off timeline, and SOTP rerating catalysts. Meanwhile, although Siemens Energy trades at a discount, it lacks sufficient order momentum, and Wartsila requires caution due to its rich valuation.

Risks

• The absolute valuations of European electrification stocks are already full, and if U.S. peer valuations decline, Europe's relative discount may not necessarily close through price gains.
• The rerating of Schneider and Siemens depends on earnings growth, results validation, and improving consensus expectations; if 1Q26 or 2026 growth disappoints, the investment thesis will weaken.
• Part of Siemens' rerating depends on clarity around the Healthineers timeline; if progress is delayed, the SOTP discount may persist.
• Although Siemens Energy trades at a large discount, insufficient order momentum in 2026 may limit share price performance.
• Wartsila is considered richly valued, raising the risk of greater divergence within the power sector.
• The report includes disclosures that Morgan Stanley has investment banking, shareholding, or other service relationships with multiple covered companies, and investors should consider potential conflicts of interest.

What to watch

• Whether the valuation discount of European electrification stocks versus U.S. data center/electrification peers continues to narrow from about 24%.
• Whether Schneider's 1Q26 results, 2026 organic growth consensus, and 2027 EBIT expectations are revised upward.
• Whether the implied multiple of Schneider's non-data-center business remains at the conservative level of about 10x 2027 EV/EBITA.
• Siemens' earnings release, EPS downgrade risk, and further clarity on the timeline for a Healthineers spin-off or disposal.
• Changes in Siemens' discount versus ABB and versus theoretical SOTP.
• Siemens Energy's 2026 order momentum and whether its discount versus GE Vernova continues to recover.
• Whether Wartsila's valuation continues to expand and how peer multiples in power equipment change.