Epiroc Seeing Margin Leverage As OE Orders Fade

This is a tricky time in the cycle for heavy machinery manufacturers, and mining equipment manufacturer Epiroc (OTCPK:EPOKY) is no exception. Aftermarket demand remains healthy and service orders continue to rise, but original equipment demand is clearly fading from the year-ago recovery levels. Longer term, Epiroc is well-placed to benefit from increased miner interest in automation and electrification, and the company also has a meaningful margin leverage angle.

I believe the market more or less has this story priced correctly now. There’s an argument that Epiroc shares should be worth a little more on the basis of strong margins and returns (ROIC, et al), but on the other hand, my DCF-based approach suggests a high single-digit annualized return from here on the assumption of mid-single-digit revenue growth and high single-digit FCF growth over the long term.

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Epiroc Seeing Margin Leverage As OE Orders Fade