Coming out of the crisis, a slimmed-down Siemens (ticker: SI) is poised to gain more market share in its three lines of business—industrial, health care and energy. The company also has redoubled its focus on shareholders, who have benefitted this year from a 25% rally, to 114, in Siemens' American depositary receipts. That performance, which Chief Financial Officer Joe Kaeser calls "a reward for the efforts on transformation," has left both GE (GE: 15.83, -0.14, -0.87%) and Switzerland's ABB (ABB: 19.36, -0.21, -1.07%) in a cloud of dust. Siemens could keep climbing to 140 per ADR as the global economy improves, lifting demand for gas turbines, high-speed trains and medical equipment.
In the thick of the global recession, in 2009, Siemens' earnings from continuing operations jumped 32%, to €2.5 billion, or €2.58 a share. The company followed up, in the fiscal year ended Sept. 30, with earnings before special charges of €4.1 billion, or €4.49 a share, on revenue of €76 billion. Buoyed by a 25% rise in orders in the fiscal fourth quarter, and an €87 billion ($115 billion) order backlog, management, led by CEO Peter Löscher, 53, announced plans to raise the dividend 69%, to €2.70 a share, the first increase in three years, for an indicated yield of 3.1%.
Analysts expect Siemens to earn €6.72 a share in fiscal 2011, and nearly €8 a share in fiscal '12. Industrial equipment and solutions account for about 46% of annual revenue; energy-related businesses chip in 34%, and health care, 16%.
Notwithstanding Siemens' operating strides, its shares trade for only 13 times this fiscal year's expected earnings. That multiple is in line with GE's valuation, but below Siemens' 10-year average price/earnings ratio of 18, and ABB's P/E of 14.
Siemens' shares are cheap for several reasons. Investors are skeptical of turnaround stories generally, and the company must live down a history of creating a bloated corporate structure and overpaying for acquisitions. Siemens took an impairment charge of €1.2 billion in the fourth quarter in its health-care diagnostics segment, continuing a troubling trend of such year-end writedowns.
Another knock on Siemens is the company's involvement in what some observers have called one of the worst scandals in corporate history. In 2008 the company paid $1.6 billion in fines to settle allegations it paid bribes and kickbacks to secure contracts. According to the company, European and U.S. regulators concluded their investigation last year of charges that dated back to 2006.
One positive consequence of this dismal chapter in Siemens' history was the arrival of Löscher, an Austrian native and former Merck (MRK: 34.47, -0.22, -0.63%) and General Electric executive, who was hired as CEO in 2007. Under his guidance, Siemens accelerated its restructuring, ultimately reducing its operating sectors to three from a prior 11. The company exited highly cyclical businesses such as telecommunications to focus on more stable and faster-growing industries; tied executive pay more closely to performance, and pushed the surviving businesses to be first in their markets. For the latest updates PRESS CTR + D or visit Stock Market news Today
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