Sandvik Upgraded to Buy at Kepler Cheuvreux on Post-Earnings Valuation

Kepler Cheuvreux has upgraded shares of Swedish engineering group Sandvik to Buy from Hold, citing a more attractive valuation following a significant share price drop. The move comes after the company's stock fell over 9% despite a second-quarter core profit beat, as investors focused on a shortfall in order intake.

Upgrade Follows Share Price Correction

In a note to clients, Kepler Cheuvreux analysts Nicklas Koller and William Mackie stated that the post-earnings sell-off presented a favorable risk-reward opportunity for investors. While upgrading their recommendation, the analysts maintained their price target for Sandvik at SEK 400.

The analysts described Sandvik's Q2 earnings beat as being of "mixed" quality. They noted that while the company's near-term earnings power proved stronger than expected, the underlying details warranted a closer look, particularly the weakness in new orders that triggered the share price decline.

Divisional Performance Under Scrutiny

Kepler's analysis highlighted divergent performance across Sandvik's key business areas:

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• Machining: This division, which carries most of the near-term earnings weight, delivered better-than-expected margins. However, this was attributed to temporary factors like tungsten timing and pre-buying, while underlying cutting-tool volume growth was only in the low single digits.
• Mining: The mining equipment division remains the strongest segment, according to the analysts. It benefits from high customer activity, favorable commodity prices, and strong aftermarket momentum. Softer equipment orders were seen as a result of tough year-over-year comparisons rather than a change in underlying demand.
• Rock Processing: Results in this unit supported Kepler's view that a weak first-quarter margin was a timing issue, not a demand problem. Orders came in slightly ahead of expectations, and margins recovered as the company converted its backlog.

Valuation and Forecasts

Following the Q2 report, Kepler raised its 2026 estimates for Sandvik's sales, adjusted EBITA, and adjusted EPS by 2%. However, the firm trimmed its 2027-28 adjusted EBITA forecasts by 2% and adjusted EPS by 3-4%, citing moderated expectations for the Machining division.

From a valuation perspective, the analysts pointed out that Sandvik now trades at a discount to its Nordic capital goods peers. Based on their updated estimates, the stock trades at 14x 2027 EV/EBIT, a multiple close to its historical average. Kepler concluded that this valuation looks attractive given the company's strong mining exposure, resilient aftermarket business, and solid balance sheet.