Geberit Earnings: Shares Rise After Strong Profit Growth and Higher Guidance, but Still Appear Cheap

Geberit’s strong pricing power and wide moat were evident during the third quarter, which helped deliver a 13% increase in operating profits, despite declining construction activity in Europe. Year-over-year price increases of 6%, combined with declining raw material costs and the group’s relentless focus on productivity improvements supported a 340-basis-point EBIT margin improvement to 24.5%. We weren’t surprised that management raised its full-year EBITDA margin guidance by 0.5% to 29.5% at the midpoint and had viewed its previous guidance as conservative given the spillover impact from price increases already implemented and a tailwind from lower raw material costs. Shares climbed 10% on Nov. 2, but still appear undervalued compared with our CHF 510 fair value estimate, which we maintain.