Restructuring Boosts Siemens

04/02/2015 10:00 am EST

Focus: GLOBAL

Yiannis Mostrous

Editor, The Capitalist Times

With annual revenue of more than EUR70 billion, this recommendation is one of the world’s largest industrial conglomerates, explains Yiannis Mostrous, editor of Capitalist Times.

The company focuses on four sectors—energy (primarily power generation), healthcare, industrial, and infrastructure and cities—but also pursues opportunities in financial services and other areas.

Why are we bullish on Siemens (F: SIE)? For one, the company continues to undergo a massive cultural change and restructuring that promises to improve profitability and swell its coffers with cash.

Last year, Siemens sold four of its underperforming units for EUR7 billion. Management has identified 13 other marginal businesses that represent about 18% of the conglomerate’s overall sales and could be on the sales block.

Selling one-third of these laggards could net the company another EUR2.5 to EUR3 billion, while the other segments could be turned around through a concerted effort.

Siemens also continues to return cash to shareholders, executing a EUR4 billion buyback program and more than doubling its dividend over the past six years.

Proceeds from divesting noncore businesses could enable the firm to expand its share repurchase program by at least EUR2 billion, providing the stock with a boost that should help it to outperform.

Although the stock has traded at a discount because of the complexity of its diversified portfolio, the aforementioned divestments should help the company to focus on its core competencies.

In turn, this should help unlock value for shareholders. Yielding 3.3%, Siemens’ local shares rate a buy up to EUR105.

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