Between Soft Guidance, Erratic Orders, And Flat Margins, It's Tough To Love Wartsila

I liked Finland’s Wartsila (OTCPK:WRTBF) (WRT1V.HE) back in late 2016, and for about two years that call worked, as the company benefited from an improved mix in its Marine Solutions business and good order momentum driven by the need for commercial shippers to install scrubbers ahead of IMO2020 pollution regulations. What hasn’t been so good, though, is progress on margins, with the company’s cost-cutting efforts offset by increased price competition in its business – a particularly disappointing development given generally good share – and a less profitable revenue mix.

This year (2019) should see Wartsila deliver some of the best revenue growth among multi-industrials as it delivers on its record order book, but orders seem likely to flatten out, and margin leverage is probably a 2020 event and I don’t have a lot of confidence that the company will reach its 14% target in the next five years. While Wartsila does look undervalued and should benefit from improving power gen orders at some point, this is a hard company for me to trust at this point and there are a lot of industrials with similar or better undervaluation and both less volatile business mixes and more credibility on hitting their margin targets.

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Between Soft Guidance, Erratic Orders, And Flat Margins, It's Tough To Love Wartsila