Separated from its parent company during the Covid-19 pandemic, Siemens Energy has been on a rollercoaster over the past 18 months — from a near-death crash to a dizzying climb of more than 310 percent this year. Still, despite the gains, investors and analysts say the share price will rise further. The big drop was the stock’s downward trend since it hit the market in 2020, through the end of last year. Growth at all costs in an era of low interest rates, building bigger wind turbines and pushing ahead with bigger projects. Investors were backing companies in the clean energy space, and the Munich-headquartered company was a perfect fit. With regulatory, political and macroeconomic tailwinds behind it, Siemens Energy began raising the average selling price of its turbines, which were then in the red, to improve margins. In August 2022, Chief Executive Christian Bruch also boasted on a call to analysts that margin expansion had boosted his Gamesa subsidiary’s order book to 34 billion euros ($36 billion). “The expectation was that we would now have revenue growth and margin growth for everyone,” said Philip Buller, an equity analyst at Berenberg. However, it was then that the company faced the first of many obstacles: inflation. Despite the steady increase in selling prices, manufacturing costs had risen even faster. To make matters worse, Siemens Energy, along with its industry peers, entered into large futures contracts at prices that were not linked to inflation. The company is now on the hook – even to this day – to deliver those contracts below production costs or face stiff penalties if it walks away. Then, when the entire sector was down, Siemens Energy suffered another blow. In June 2023, the company withdrew its profit forecast due to a substantial increase in the failure rate of its onshore wind turbine components. Its Gamesa subsidiary was now expected to incur “significantly higher costs” than previously estimated. Gamesa will not only have to pay to fix the problems in its existing offshore turbine fleet, but will also compensate wind farm operators for any financial losses if the turbines stop generating power. The situation was made worse by the fact that Siemens Energy had completed the purchase of a minority stake in Gamesa a month earlier, which it did not already own, for about 4 billion euros. In the days that followed, analysts at JPMorgan, Jefferies, Citi, UBS and Santander downgraded the stock, and the share price fell more than 70% between June 2023 and the end-October profit warning. . Ingo Speich, head of sustainability and corporate governance at Decca Investments, Siemens Energy’s 15th-largest shareholder, said the Gamesa purchase and the resulting bad news “could have been better timed”. Simply put, investors were not affected by the loss of value. “We were frustrated with the administration at the time,” Speich added. A sale price of $1 could have been $10 billion upside.Gemsa’s problems meant the unit was being valued at between zero and negative 12 billion euros – dragging down Siemens Energy’s overall value. “We were arguing at the time that, despite how bad Gamesa was, if they sold it for $1 it would probably be worth 10 billion compared to Siemens’ energy stock,” Berenberg’s Buller said of the Gamesa-related negativity. said while explaining the value. Buller estimates that the divestiture is still worth between minus six and minus 20 billion euros as the unit will continue to make losses in the coming years as it repairs about 3,000 wind turbines worldwide. According to Buller, a silver lining could be lower future maintenance costs after Siemens Energy fixes the current problems. The analyst expects shares to rise 40 percent to 70 euros in the next 12 months. Opportunities amid downturn Other investors took a different view of Siemens Energy amid Gamesta’s woes. Alec Cutler, fund manager of the Orbis Global Balanced Fund, which is the 20th largest shareholder in Siemens Energy, believes the stock has fallen below its fair value and has added to its holdings. “All of our analysis was done from the beginning assuming that Siemens Gamesa had no value,” Cutler told CNBC Pro. Whatever problems Gamesa was having, “it had to be really, really bad to offset one of the world’s largest gas turbine manufacturers and one of the world’s largest switching and transformer businesses,” Cutler added. Saying that the crisis is too great. Even amid the stock selloff, Decca Investments’ spiel suggested the company was worth more than its market value. Investment firm DekaFonds increased its stake in Siemens Energy by more than 65% as the stock fell. “At the time, we felt the market reaction was exaggerated. We looked at the data closely and talked to the company,” Speich told CNBC. He added that Gamesa “has big problems, but they are under control. Management must deliver now. There are no more excuses.” Overlooked Subsidiaries While investors focused on the loss-making Gamesa subsidiary, Siemens Energy’s other divisions – gas services, grid technologies and industrial transformation – outperformed analysts’ and investors’ expectations. demonstrated. A key driver of growth has been the sudden increase in global electricity demand, driven by the need to build new data centers for artificial intelligence applications. In addition, the transition to low-carbon energy generation – wind or solar – has pushed the construction of the electricity grid faster than previously expected. That means Siemens Energy’s grid technologies division will become the biggest moneyspinner among its four divisions in 2025, according to Gail de Bray, European head of capital goods research at Deutsche Bank. The subsidiary’s order backlog is now 33 billion euros, up 43 percent from last year. Demand is so strong that consumers are even paying reservation fees to take delivery of high-power transformers in 2030. Siemens Energy’s new US factory, which is not yet ready, has sold out its manufacturing capacity for the next two years. . “Coupled with an increasing share of renewables, growth in installed electricity capacity should be even stronger, driving significant investment in infrastructure, particularly grid capacity,” de Bray told clients. said in a note. “Increased demand related to the construction of data centers could provide additional growth of 10-15%.” The analyst expects the stock to rise another 15% from current levels over the next 12 months. Outside Influence Another obvious factor behind the rise in Siemens Energy’s shares this year is the spin-off and stock market listing of its US rival GE Vernova. Siemens Energy’s subsidiaries face global competitors. Vestas competes with Wind Systems and Nordex Gamesa. Switzerland’s ABB and South Korea’s HD Hyundai also make grid and turbine technologies. Yet, until GE Vernova debuted on the stock market, no one rivaled Siemens Energy’s subsidiaries all under one parent. The list provided analysts and investors with new data points to better value Siemens Energy. GE Vernova was spun off from US conglomerate General Electric and floated on the New York Stock Exchange in March, as Siemens Energy was born from Siemens AG. Vernova manufactures wind, gas, nuclear and hydro turbines as well as grid technologies. The US company’s shares have risen more than 160% this year, driven in part by the clean energy transition and AI data center demand. GEV 5Y line “If Vernova is right about the level of profit they see from demand, why [wouldn’t] Can Siemens implement that as well?” said Chris Smith, a fund manager at the Artisan Focus Fund, which owns stakes in both GE Vernova and Siemens Energy. He believes the German company is currently competing against GE Vernova. Down at least 50 percent in 2026, Smith said, adding that Siemens Energy’s share price has declined since its IPO this year. There has been some “reluctance” to invest in Energy’s share price, however, as investors believe that, as time passes and Gamesa begins to turn a profit, the stock is likely to re-rate. “As we look out three to five years, Siemens Gamesa could be one. An absolute gem for them, and wouldn’t that be a good thing?” added Orbis Investment’s Cutler.