Atlas Copco (Hold, TP: SEK195.00) - A narrow path ahead

The Q3 report was on the soft side, with adj. EBIT 4% below consensus, and the near-term guidance for somewhat weakening customer activity as well as a more uncertain outlook due to global macroeconomics. We have lowered our 2024e adj. EBIT by 2% (2025–2026e are largely unchanged) and continue to find the valuation as fair at a 2025e EV/EBIT of 22x, and reiterate our HOLD and SEK195 target price.

Atlas Copco (Hold, TP: SEK195.00) - Marginally reduced estimates

We are 2% below consensus on Q3e orders, but 1–2% above on sales and adj. EBIT, and expect the company to guide for stable or somewhat lower demand in Q4. We have reduced our 2024–2026e adj. EBIT by 3% on average, mainly due to FX and cut organic growth in Compressor Technique on lower energy prices. We reiterate our HOLD, but have lowered our target price to SEK195 (200).

Atlas Copco (Hold, TP: SEK200.00) - Not enough for the darling

Atlas Copco’s Q2 report was not as bad as the share price reaction would indicate, but left us with an underwhelming view about near-term margin progression, as management does not seem confident in a near-term offset of negative mix or leverage. We have lowered our 2024–2026e adj. EBIT by 2–0% and our target price to SEK200 (205) but reiterate our HOLD.

Atlas Copco (Hold, TP: SEK205.00) - Expectations ahead of Q2

We are 2% above consensus on Q2e orders and sales, and 3% on adj. EBIT. We expect the guidance to be unchanged demand into Q3, and still no improvement in demand from the semiconductor industry, which could become visible in H2e or 2025e. We have reduced our 2024–2026e adj. EBIT by 4% on average, mainly on FX. We reiterate our HOLD, but have raised our target price to SEK205 (195) on valuation, reflecting a 2-year forward EV/EBIT of 22.0x.

Atlas Copco (Hold, TP: SEK195.00) - In one word: Strong

Atlas Copco’s Q1 report impressed with a solid order beat and guidance that implies our estimates and consensus for orders are too low for the rest of 2024e. We view the comments on the semiconductor industry as cautiously optimistic. We have raised our 2024–2026e adj. EBIT by 5–7% and our target price to SEK195 (185), but reiterate our HOLD as the valuation looks full in our view at a 2024e EV/EBIT of 22.5x.

Atlas Copco (Hold, TP: SEK185.00) - Still waiting for semis

We are 2% above consensus on Q1 orders, 1% above on sales and in line on adjusted EBIT. We expect the guidance to be for unchanged demand into Q2 and for comments that management has not yet seen any improvement in demand from the semiconductor industry. Although our deviation versus consensus for Q1 is negligible on the group level, we find the margin assumptions for VT somewhat optimistic. We have raised our adjusted EBIT by 4% on average for 2024–2026e. We reiterate our HOLD but have raised o...

Atlas Copco (Hold, TP: SEK175.00) - Sentiment dented

Weak Q4 order intake, the downside risk that the guidance implies to consensus Q1e orders, and management’s comments that there is still no demand recovery in sight near-term from semiconductor customers are hurting sentiment towards the stock. We have raised our 2024–2025e adj. EBIT by c2%, as we expect backlog support and solid margin progression, but believe the full valuation (2024e EV/EBIT of 20.8x) caps the upside potential. We reiterate our HOLD but have raised our target price to SEK175 ...

Atlas Copco (Hold, TP: SEK170.00) - Lofty valuations into 2024e

Although the risk/reward seems lacklustre and the stock is pricing in a rather upbeat semiconductor market for 2024 in our view, we do not believe the valuation alone is a good enough reason to turn negative on the stock. We reiterate our HOLD but have raised our target price to SEK170 (145), despite cutting our 2024–2025e sales and adj. EBIT by 5–4% (on FX changes), with our target price assuming a lofty 2-year forward EV/EBIT of 21x (was 17x).

Decoding Alpha

Our analysis of underlying total shareholder return (TSR) drivers for Swedish Industrial companies reveals that high returns are not synonymous with high valuations. Investors tend to overpay for ‘growth’, while cash returns such as dividends and buybacks are typically deeply discounted. We believe Autoliv, Alfa Laval and Hexagon offer the most long-term TSR potential (13–14% annualised), with SKF and Trelleborg at the other end of the spectrum (8–9%), while also concluding that several stocks l...

Atlas Copco (Hold, TP: SEK145.00) - Strong margins across the board

Q3 impressed with strong margins across all divisions and, despite the guidance for weaker demand in Q4, we see limited near-term risk, as consensus was already for a slowdown in orders. For 2024e, we believe there could be some downside risk to consensus orders, although given the large backlog, we see limited risk to sales and earnings estimates. We reiterate our HOLD but have cut our target price to SEK145 (150).

Atlas Copco (Hold, TP: SEK150.00) - We expect a robust quarter

We have raised our 2023–2025e adj. EBIT by 2–7%, due to FX changes, leaving us 4% above consensus for Q3e. We expect Q3 to have remained robust, but we will focus on order intake and outlook comments in the Q3 results (due on 25 October), where we expect somewhat weaker orders QOQ for Q4, but that certain end-markets (e.g. process industries) should remain resilient. We reiterate our HOLD and SEK150 target price.

Northern Lights

Atlas Copco (Hold, TP: SEK150.00) - Weakening demand

Although Atlas Copco’s Q2 results were solid, this was overshadowed by the guidance for weakened customer activity (amplified by comments that semiconductor demand would not trough until 2024, rather than in H2). We have lowered our adj. EBIT by 1% for 2023e and 4% for 2024–2025e (due to negative FX), but reiterate our HOLD, trimming our target price to SEK150 (155). At a 2023e EV/EBIT of c20x, we find the valuation full.

Atlas Copco (Hold, TP: SEK155.00) - No room for error

We expect underlying momentum to have stayed strong in Q2 and are 3–5% above consensus on orders, sales and adj. EBIT. However, at a 2023e EV/EBIT of 20.7x and after the share-price rally that has followed the Q1 results, we see no room for error and the near-term risk/reward as tilted towards the negative. We reiterate our HOLD but have increased our target price to SEK155 (150) after raising our 2023–2025e adj. EBIT 1–4% (mainly on FX).

Atlas Copco (Hold, TP: SEK150.00) - Report rally has gone too far

Atlas Copco’s Q1 report was strong, and we have raised our adj. EBIT by 7–11% for 2023–2025e and increased our target price to SEK150 (135). However, we reiterate our HOLD and believe the near-term risk/reward has become more negatively skewed after the shares rallied over 14% on the report. Given how poorly other sector companies have reacted to strong results, we find this move unjustified, making the shares fully valued, in our view.

Northern Lights

Still going strong

Although reported EU taxonomy alignment for the sector is low, we have identified which companies screen best and could benefit from attracting ESG capital. We still favour China, mining, energy and aftermarket exposure, and see upside potential to consensus estimates, but view overall risk/reward as neutral on elevated valuation.

Northern Lights

Atlas Copco (Hold, TP: SEK135.00) - Q1e better than Q4

We are 6% above consensus on Q1e adj. EBIT, as we expect sales growth to accelerate and margins to improve QOQ. We have raised our adj. EBIT by c3–4% for 2023–2025e as we now expect a less-severe margin contraction YOY. At a 2023e EV/EBIT of 19.1x, we find the valuation fair and reiterate our HOLD, but have raised our target price to SEK135 (125).

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