Automation And Digitalization Will Power Global Industrial Markets

Key Takeaways

• Ongoing innovation, digitalization, and expansion in services strengthen Atlas Copco's pricing power, recurring revenue, and margin stability despite temporary order slowdowns.
  
• Global infrastructure growth and optimization efforts position the company for profitability and sustained demand recovery as macro uncertainties ease.
  
• Persistent currency and geopolitical headwinds, weak large-order demand, and rising costs from innovation and restructuring threaten Atlas Copco's margins, competitiveness, and near-term sales stability.

Catalysts

Provides compressed air and gas, vacuum, energy, dewatering and industrial pumps, industrial power tools, and assembly and machine vision solutions in North America, South America, Europe, Africa, the Middle East, Asia, and Oceania.

• Hesitation in customer investment decisions for large compressors and Gas & Process projects has resulted in short-term order declines, but a strong ongoing project pipeline and no meaningful order cancellations suggest pent-up demand could drive a rebound in equipment revenues once macro uncertainty recedes and customer decisions resume.
  
• Sustained investments in product innovation-including AI-driven efficiency in compressors and launches like the new GHS pump VSD+-position Atlas Copco to benefit from ongoing shifts toward automation, energy efficiency, and digitalization in industrial and infrastructure markets, enhancing long-term revenue growth and supporting premium pricing power.
  
• The expanding, high-margin service and aftermarket business continues to grow robustly across business areas, increasing recurring revenue streams and helping to stabilize and lift group operating margins even amid volatility in equipment orders.
  
• Successful execution of restructuring programs and ongoing cost optimization in areas like Vacuum Technique are already lifting margins and are expected to further improve profitability, especially as revenue growth resumes in core segments.
  
• Global infrastructure investments and industrial expansion in emerging markets (South America, Africa, Asia) are delivering positive regional growth, positioning the company to capture rising demand for industrial and construction equipment, thereby supporting top-line revenue growth over the medium to long term.

Atlas Copco Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Atlas Copco's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.2% today to 16.9% in 3 years time.
• Analysts expect earnings to reach SEK 33.5 billion (and earnings per share of SEK 6.86) by about September 2028, up from SEK 28.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK28.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.6x on those 2028 earnings, up from 26.2x today. This future PE is greater than the current PE for the GB Machinery industry at 22.4x.
• Analysts expect the number of shares outstanding to decline by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.05%, as per the Simply Wall St company report.

Atlas Copco Future Earnings Per Share Growth

Risks

• Persistent currency headwinds, particularly from unfavorable USD and EUR movements, have significantly reduced operating margins and are expected to continue exerting negative pressure on both revenues and profit if exchange rate volatility persists or worsens.
  
• Weakness and hesitation in large-order segments-including Gas and Process compressors and large industrial compressors, especially in China and Europe-reflect softening industrial investment, posing a risk to organic revenue growth and exposing Atlas Copco to order volatility and lumpy results.
  
• Structural and cyclical uncertainty in key end markets like automotive, semiconductors, and Chinese industrial sectors could prolong subdued demand, reduce equipment orders, and lead to potential underutilization-impacting future earnings and cash flow stability.
  
• Rising costs from ongoing investment in innovation, restructuring, and digital transformation initiatives, coupled with continued mixed demand across divisions, create margin compression risks, especially if pricing power is insufficient or service growth fails to offset soft equipment sales.
  
• Heightened geopolitical uncertainty-including the threat of increased tariffs (e.g., potential 30% US/Europe compressor tariffs) and global supply chain disruptions-may force Atlas Copco to shift production locations, incur additional costs, and experience reduced competitiveness, threatening both profitability and international sales growth.

Valuation

• The analysts have a consensus price target of SEK171.765 for Atlas Copco based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK210.0, and the most bearish reporting a price target of just SEK125.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK198.7 billion, earnings will come to SEK33.5 billion, and it would be trading on a PE ratio of 29.6x, assuming you use a discount rate of 6.0%.
• Given the current share price of SEK151.3, the analyst price target of SEK171.76 is 11.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.