Hexagon Q3'25: Earnings turnaround already priced in

Source: Inderes & Bloomberg  (consensus includes 16 estimates)

Q3 showed continuing signs of gradual recovery in organic growth, even if the company’s profitability is under pressure. Hexagon has initiated large measures to boost the potential of the diversified technology conglomerate through a strategic split-up and a cost-saving program. We expect a clear growth and profitability turnaround to take place in 2026-27, which is, however, not enough to make valuation attractive at current share price levels. We reiterate our Reduce recommendation and a target price of SEK 110 per share.

Q3: Gradual operational improvement with high one-off costs

Hexagon’s organic growth continued to recover in Q3’25, reaching 4% year-on-year, in line with our expectations. Reported revenue remained flat due to currency headwinds, which offset the positive organic momentum. Recurring revenue outpaced the group average, growing 6% organically, reflecting continued expansion in software and service-based businesses in various divisions. Autonomous Solutions delivered faster-than-expected organic growth of 19%, supported by strong demand in aerospace and defense and sustained strength in mining. Meanwhile, Manufacturing Intelligence (3%) and Geosystems (1%) showed slight gradual improvement after a prolonged cyclical downturn. Octave, Hexagon’s soon-to-be-spun-off software division, posted weaker-than-expected 1% organic growth, constrained by weak perpetual license sales. Adjusted EBIT came in at 349 MEUR, slightly below our estimate (–5%) but ahead of consensus (+3%). Profitability declined year-on-year, mainly due to weak hardware demand in Geosystems and low growth in Octave, combined with spin-off-related increases in admin costs. Hexagon recorded substantial one-off costs in Q3, including a 113 MEUR restructuring charge and 186 MEUR impairment on intangibles, including redundant products and technologies.

Several strategic measures ongoing to boost the potential

Hexagon is undergoing a great transformation given the planned split-up of the group into two more focused players, Hexagon Core and Octave. Hexagon Core focuses on robotics and sensors, meanwhile Octave is a pure-play software business. The company also initiated a cost-saving program with 110 MEUR potential savings kicking in gradually from Q4 and to be fully in place by the end of 2026. We expect the company to reach significant savings, but on the other hand, a growth company needs to invest in R&D and sales, which means some of the savings could partially be offset by growth measures. Our estimates include continued improvement in organic growth to 5% in 2026 after two challenging years. We also forecast a profitability turnaround with adjusted EBIT reaching 28.9-29.7% in 2026-27 after 27.1% in 2025e. Following the announced divestment of the Design & Engineering business, we have reduced our 2026-27 revenue estimates by ~6% and adjusted EBIT by 7-8%, of which roughly 6%-units relate to the divestment. Hexagon expects to record a 1.4 BNEUR gain from the sale, significantly boosting reported Q1 2026 EPS. The remaining 1-2 %-units of the EBIT cut was related to slightly weaker-than-expected Q3 figures.

Valuation is stretched even if the turnaround succeeds

While growth and earnings momentum will likely improve after a challenging period, we find valuation stretched. On our estimates, Hexagon trades at 19x adj. EV/EBIT and 21x reported EV/EBIT 2026e, in line with peers. We find the estimated multiples tight considering the uncertainty related to the earnings turnaround, including potential shifts in the macroeconomic environment and the ability to grow and reduce costs simultaneously. Looking to 2027 estimates, an EV/EBIT multiple of 18x would result in a fair value of SEK 129 per share (including dividends), implying a mere 3% annualized total return. Hexagon remains a high-quality compounder with solid exposure to advanced digitalization and automation megatrends, but we find the risk/reward balance unsatisfactory at current levels.