Morgan Stanley warns of Middle East risks, Siemens Energy stock price declines

Investing.com - Siemens Energy’s stock price fell on Friday after Morgan Stanley removed the German industrial group from its preferred stock list, citing exposure risks as tensions escalate in the Middle East.

The Wall Street investment bank maintained an overweight rating on the stock, with a target price of €166, but stated that a more cautious near-term stance is warranted given the geopolitical situation.

As of 10:48 AM GMT, the stock price of the German power equipment group dropped 4.7% to €143.15.

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Morgan Stanley analysts, including Max Yates, noted that Siemens Energy “faces relatively higher risks” compared to other stocks in the sector and may be impacted by the situation in the Middle East.

Concerns are focused on the gas services sector, which has been a major driver of new orders in the region. “The key performance indicator tracked by the market in 2026 is new orders, particularly in the gas sector,” the analysts pointed out.

In the second and third quarters of fiscal year 2025, Saudi Arabia accounted for approximately 3.6 GW and 4 GW of orders, respectively, while total orders each quarter were around 9 GW.

According to McCoy data cited in the research report, the Middle East is expected to account for 35% of Siemens Energy’s new gas turbine unit orders (by capacity) in 2025. The company itself disclosed that its total order exposure in the Middle East and Africa for 2025 is €9 billion, representing 15% of the total.

“We believe that most of this 15% will come from the Middle East (rather than Africa),” the analysts stated.

Aside from orders, the team also warned of potential revenue delays in the gas and grid sectors, noting that difficulties in accessing customer sites could impact aftermarket revenues and delay equipment deliveries.

“The situation in the Middle East is still evolving, but we believe that Siemens Energy’s gas services orders or revenues are unlikely to be completely unaffected,” the analysts wrote.

This removal also reflects how much expectations have changed over the past year. Since first listing Siemens Energy as a preferred stock in March 2025, Morgan Stanley’s forecast for the group’s EBITA in 2028 has risen from €6.2 billion to €9 billion, while its assumption for the EBITA margin of gas services in 2028 has increased from 15% to 21%.

The stock’s valuation has also changed, with the 2028 EV/EBITA metric shifting from a 35% discount relative to European capital goods peers to a 10% premium.

Even so, when measured by the same metric, Siemens Energy is still at a 38% discount compared to its U.S. competitor GE Vernova, with analysts attributing part of this gap to Siemens Energy’s higher exposure in the Middle East.

The analysts stated that they remain optimistic about Siemens Energy’s 26% compound annual growth rate in EBITA from 2026 to 2030, driven by a large order backlog. However, they noted that its 2028 EBITA forecast is currently only 3% above the market consensus, limiting the scope for positive surprises in the near term.

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