Epiroc Earnings: Operating Margin Slightly Disappoints Rich Expectations

Narrow-moat Epiroc’s full-year adjusted operating margin declined 200 basis points to 21.7%, short of expectations. The shares have been richly valued; therefore, even marginal underperformance to consensus, largely confined to the group's tools and attachment segment because of weak construction demand, sent the shares 3% lower on Jan. 24. Short-term measures are in place to protect profitability, and we expect the favorable outlook for the service business, which enjoys several structural tailwinds, will prevent any further material deterioration in operating margin. We maintain our SEK 165 fair value estimate and view the shares as marginally overvalued.