Wartsila Earnings: Investors Warm to Strong Profit Margin Expansion; Shares Expensive

Wide-moat Wartsila reported a strong second-quarter result, with new orders rising 10% year over year to EUR 1.85 billion in broad accordance with both our full-year and consensus expectations. Nonetheless, investors cheered the significant EBIT margin strengthening--it widened by 130 basis points quarter on quarter to 11.3%--as equipment margins firmed and the marine segment's sales mix skewed further toward high-profit-margin aftermarket services. Wartsila's share price strengthened, up some 3% at the time of writing. While we expect to tweak our near-term estimates, our long-term outlook for Wartsila remains unchanged. Consequently, we don't anticipate a material change in our fair value estimate of EUR 13 per share. Shares continue to screen as expensive.