EUR 850.00 For Business Accounts Only

Morningstar | We believe the shares of narrow-moat Siemens are undervalued.

Siemens is a strong technology innovator with a global leadership position in electrical engineering. Siemens' structure of diverse businesses serving multiple end markets is typical of conglomerates, but the ongoing portfolio optimisation should lead to a more focused company with stringent resource allocation for growth in electrification, automation, and digitisation. We support the separation of the Healthineers division, as this business faces challenging dynamics due to trends toward value-based reimbursement and the convergence of diagnosis and therapy, and should be better off as a stand-alone operation.Siemens' focus on portfolio optimisation, cost reduction, and business excellence should mitigate the impact of cyclical swings. The firm has strengthened its oil and gas portfolio through several acquisitions, and mergers and acquisitions remain key to its operational strategy. Although the Dressler-Rand transaction value was at the high end of our expectations and Siemens has had a mixed record with healthcare and solar acquisitions, we expect the firm to be more disciplined with M&A in the future. Management's commentary and the new incentive structure, which focuses on returns, as opposed to revenue growth, are at the heart of our belief. As Siemens missed the bus on land-based wind energy, we support the firm’s merger with the wind power business of Gamesa. Siemens attributed its offshore technology leadership position and owns 59% of the shares of the combined entity. On the strength of its energy and wind portfolio, we believe Siemens will benefit from demand for new power-generation capacity in emerging markets and a push for more renewable sources in the U.S. and Europe. Siemens' sweet spot is digital factory, which accounted for approximately 14% of revenue in 2017. By helping industrial companies automate factory floors, Siemens provides cost savings to customers and develops a sticky relationship through reliable maintenance support for its products.