Siemens Expected To Engineer Dividends And High Growth

Feb.21.12 | About: Siemens AG (SIEGY)

Siemens (SI) is a $85.89 billion, large-cap electronics and electrical engineering company. Based in Germany, the company operates worldwide in the energy, industry, healthcare, infrastructure, and cities sectors. Siemens provides solutions for the efficient use of energy and productivity in the industry and infrastructure sectors. It also offers solutions for power generation and transmission; for the extraction and transportation of oil and gas; diagnostic & therapeutic systems for healthcare; information technology; smart grid applications; commercial finance; insurance solutions; real estate services, and more.

The stock was trading above $140 in May 2011 before tumbling with the rest of the market to just below $90. It appears to be slowly emerging from its oversold low levels.

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Siemens is clearly undervalued, with a trailing PE ratio of 11.23, a forward PE ratio of 10.25, and a low PEG of just 0.29. The stock is currently trading at only 1.96 times book value per share. This looks like a great valuation on a company that is recovering from the recent economic uncertainties.


It has a profit margin of 7.95% and an operating margin of 9.63%. Management has achieved an impressive return on equity of 19.76%. Siemens has earnings per share of $8.73, an operating cash flow of 7.39 billion and levered free cash flow of $692.33 million.

The balance sheet looks solid with $16.51 billion in total cash and $22.86 billion in total debt. It has 1.21 times more current assets than current liabilities. Total debt to equity stands at 51.28.

Siemens has two upward earnings revisions for 2012 and two for 2013. It is expected to grow earnings annually at 37.7% for the next five years. This is an aggressive expectation as it only grew earnings annually at 4.31% for the last five years.


Siemens pays a dividend of 2.9%. Although the company hasn't decreased its dividend since 1993, it doesn't necessarily increase it every year either. The payout sometimes remains the same for 3 to 4 years before an increase is implemented. On the bright side, 2011 and 2012 both saw dividend increases and the company is in the process of committing to a new policy of rewarding shareholders with 30% - 50% of net profits. This commitment shows management's confidence in generating significant cash going forward.


Management expects a recovery in the second half of 2012. The company has suffered with the uncertainties of the European debt crisis. Orders in its fiscal first quarter were down 4%, with revenue rising 3%.

The U.S. has been a bright spot for Siemens as sales increased 2% with orders growing at 6% in its fiscal first quarter. The U.S. was the only region where Siemens had sales and order growth in the first quarter. Siemens has recently expanded its North Carolina gas turbine factory. It invested $350 million in the facility and created 700 new jobs.

The company is the world's largest provider of environmental technologies, deriving 40% of its revenue from green products and solutions. Siemens is planning on expanding its virtual power plant that it operates with RWE (RWE.DE). This is the first centralized direct marketing of electricity from a large number of energy sources in Germany. The current 20 megawatts of electricity to be generated in 2012 is to increase tenfold to 200 megawatts by 2015 under the expansion plan. Various energy sources in Germany are to be used for this plan including: Biomass plants, biogas block heating plants, wind turbines, and hydroelectric plants.

Siemens is focusing on current and expected population shifts for the cities sector. By 2025, 60% of the world will live in cities, and by 2050, 70% of the world will live in cities. Siemens offers various solutions for cities which include: Rail and mobility systems, smart grids, and efficient buildings.

The company received a $1 billion order from Saudi Arabia for the delivery of turbines and generators for a combined cycle power plant. Plans are in place for building a production plant in Russia to build gas turbines. A similar plant was just completed in the U.S. last November.

Siemens looks positioned to do well as it adapts to the worldwide needs in its various sectors. Its undervaluation makes now a great time to pick up the stock as a long-term investment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.