Target $110 on Siemens Shares

Siemens AG (SI - Analyst Report) reported lower than expected revenues for 1Q08 since the VDO group is now considered discontinued - and earnings higher than our estimates due to sale of VDO assets. The first quarter was marked by solid margin expansion across majority its businesses, although there was continued weakness in order intake in the SBT, PTD and SIS divisions.

We have lowered our revenue expectations for 2008 and 2009 due to VDO divestiture and we expect in-line with previously expected earnings in these two years. The president and CEO, CFO as well as all other members of Siemens managing board made major purchases of Siemens stock from privately-owned funds, setting the stage for active interest in the affairs of the company from an owner’s perspective.

While the A&D, I&S, Osram, TS, PG and medical groups continued to drive growth, growth in SBT, PTD and SIS businesses were weaker than expected. Order growth was also weaker in these areas, which doesn’t bode well for the next three quarters of 2008. We are encouraged by the Dade Behring acquisition, which could provide some upside in the second half of 2008. The development effort at power machines could provide geographic expansion in Russia.

Siemens is currently trading at 6.6x our fiscal year 2008 estimate, and 12.9x our new 2009 estimate, which we believe is fair given its expected growth prospects. We maintain our Hold rating on the shares of Siemens. We have fixed a price target of $110, based on SI selling at 6.9x our 2008 earnings estimate of $15.93 a share.

Udayan Mukherjee contributed to this report.

Read the full analyst report on SI.