Siemens stock price declines, Morgan Stanley warns that the Middle East situation poses recent risks

Investing.com - Siemens Energy’s stock price is under pressure after Morgan Stanley removed the German industrial group from its preferred stock list, citing that the company’s business exposure in the Middle East faces risks from escalating regional tensions.

The American investment bank maintains an overweight rating on the stock, with a target price of €166, but states that a more cautious stance is needed in light of geopolitical developments. At the time of the report’s release, the stock was trading at €158.40.

Morgan Stanley analysts noted that Siemens Energy faces relatively higher direct risks from the turmoil in the Middle East compared to other European capital goods companies they cover. This concern is focused on the gas services sector, which has been a major driver of new orders in the region. In the second and third quarters of fiscal year 2025, Saudi Arabia contributed approximately 3.6 gigawatts and 4 gigawatts in orders, respectively, while the total order volume for each quarter was about 9 gigawatts.

According to McCoy data cited in the report, the Middle East accounts for 35% of Siemens Energy’s new gas turbine orders in terms of capacity by 2025. The company disclosed that its total order exposure in the Middle East and Africa amounts to €9 billion, representing 15% of total orders.

In addition to orders, the bank also warned about the potential revenue decline risks in the gas and grid sectors, pointing out that difficulties in accessing customer sites could affect aftermarket revenues and delay equipment deliveries.

Analysts wrote, “The developments in the Middle East are still evolving, but we believe that orders or revenues in Siemens Energy’s gas services sector are unlikely to be completely unaffected.”

This removal also reflects the significant changes in market expectations over the past year. Since first adding Siemens Energy to its preferred stock list in March 2025, Morgan Stanley’s forecast for the group’s 2028 EBITA has risen from €6.2 billion to €9 billion, while its assumption for the EBITA margin in the gas services sector for 2028 has increased from 15% to 21%. The stock’s valuation has also changed, shifting from a 35% discount to European capital goods peers to a 10% premium based on 2028 EV/EBITA.

Analysts noted, “The key performance indicator tracked by the market in 2026 will be new orders, especially in the gas sector.” They added that if regional governments shift spending towards defense, future order decisions in the Middle East may be delayed.

Morgan Stanley stated that, supported by a large backlog of orders, the firm continues to expect Siemens Energy’s EBITA compound annual growth rate to be 26% between 2026 and 2030. However, the firm warned that its 2028 EBITA forecast is currently only 3% higher than market consensus, limiting the space for positive surprises in the near term.

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