Is Siemens Healthineers AG's (ETR:SHL) Latest Stock Performance Being Led By Its Strong Fundamentals?

editorial-team@simplywallst.com (Simply Wall St)

Mon, Mar 3, 2025, 1:10 AM 4 min read

Siemens Healthineers' (ETR:SHL) stock up by 4.0% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Siemens Healthineers' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Siemens Healthineers

How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Siemens Healthineers is:

10% = €2.0b ÷ €20b (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.10 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Siemens Healthineers' Earnings Growth And 10% ROE

At first glance, Siemens Healthineers seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 8.0%. Despite this, Siemens Healthineers' five year net income growth was quite low averaging at only 4.0%. This is generally not the case as when a company has a high rate of return it should usually also have a high earnings growth rate. We reckon that a low growth, when returns are quite high could be the result of certain circumstances like low earnings retention or poor allocation of capital.

Next, on comparing with the industry net income growth, we found that the growth figure reported by Siemens Healthineers compares quite favourably to the industry average, which shows a decline of 2.3% over the last few years.

past-earnings-growth — XTRA:SHL Past Earnings Growth March 3rd 2025

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for SHL? You can find out in our latest intrinsic value infographic research report.

Is Siemens Healthineers Using Its Retained Earnings Effectively?

Siemens Healthineers has a three-year median payout ratio of 55% (implying that it keeps only 45% of its profits), meaning that it pays out most of its profits to shareholders as dividends, and as a result, the company has seen low earnings growth.

Additionally, Siemens Healthineers has paid dividends over a period of six years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 48% of its profits over the next three years. Regardless, the future ROE for Siemens Healthineers is predicted to rise to 16% despite there being not much change expected in its payout ratio.

Conclusion

In total, we are pretty happy with Siemens Healthineers' performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.