Wärtsilä Q1'26: Valuation causes friction in roaring order engines

Translation: Original published in Finnish on 4/29/2026 at 8:00 am EEST.

Wärtsilä's Q1 report exceeded market expectations in terms of orders, and we believe the company's outlook remains favorable. Although we made minor revisions to our operational estimates for the coming years, our estimates for the latter half of the decade were supported by Energy's data center orders and strong demand outlook. While we believe the company's near-term outlook is excellent, the current share price implies that this will continue further into the future than we expect. Due to high expectations, we still view the risk-adjusted expected return as very weak and reiterate our Sell recommendation but raise our target price to EUR 32.5 (was EUR 4.7) in line with the changes in the estimates. 

Earnings and orders above market expectations

Wärtsilä's Q1 revenue remained flat year-on-year and was slightly below expectations due to a decrease in Marine and Energy service revenues. Despite the equipment-heavy revenue, the company's margin development exceeded expectations. However, the strong performance of the Portfolio businesses was behind the beat. Marine's margin development was slightly better than expected, while Energy's was slightly lower. Meanwhile, the combined order intake for Marine and Energy grew by 28% y/y, clearly exceeding our estimates (+17% y/y) and consensus estimates (+15% y/y). Orders were boosted by Energy's record-breaking orders driven by equipment. Wärtsilä noted that the segment’s sales pipeline for data centers remains strong but volatile. At the other end of the spectrum, orders for Energy Storage remained very low.

Forecasts on the rise toward the end of the decade

Wärtsilä's outlook remained unchanged from the Q4 report. The company expects the demand environment for Energy and Energy Storage to improve over the next 12 months, while the demand environment for Marine is expected to remain similar to that of the comparison period. This outlook was well in line with our expectations, and we anticipate favorable market conditions to continue for Marine and Energy. So far, the situation in the Middle East has had minimal impact on the company, in our view, but if the situation drags on, it would naturally affect Wärtsilä through inflation and likely slower economic growth.

We made only minor adjustments to our Marine and Energy Storage forecasts but significantly raised our Energy order forecasts for this year, supported by the data center orders announced in Q2. Given the continued favorable outlook for demand, we have also raised our order forecasts for the coming years. Due to long delivery times, these changes will only more clearly reflect in our operational estimates for 2028–29. However, we still expect the strong tailwind provided by data centers to gradually subside in the coming years, albeit from higher levels than before. Nevertheless, we expect the current market to drive the company’s growth to a high level this decade (cf. the combined average growth rate of 10% for Marine and Energy in 2026–30).

Valuation requires continued surge in orders

Based on our 2026 forecasts, we believe the stock is highly valued (EV/EBIT 21x), but this is justified by the extremely strong outlook for demand and orders. However, given the strong order book and demand outlook, the visibility of Wärtsilä’s growth in the coming years is on a solid footing (EBIT growth 2026–28: ~10–12% annually), and for this reason, we believe it is justified to look further ahead in terms of valuation. Given the earnings growth, we believe the valuation appears reasonable for the years 2028–2029 (EV/EBIT 14x–16x). Conversely, if the current data center-driven demand were to cool off in the medium term and the rest of the market were unable to make up for this, Energy’s new equipment sales could take a hit in terms of both volume and margins. In this scenario, earnings growth could halt at the turn of the decade, and the multiples could prove expensive. Our current forecasts also factor in a clear improvement in the profitability of new equipment sales, yet our longer-term DCF model, for example, still comes in at around our target price.