Executive Summary

Epiroc AB presents the investment profile of a premier cyclical industrial company positioned at the confluence of two powerful secular trends: the accelerating global demand for minerals critical to the energy transition and the comprehensive technological transformation of the mining industry. This analysis frames Epiroc as a company balancing the stability of a high-quality, resilient aftermarket business against its established leadership in high-growth technology sectors such as automation, digitalization, and electrification. This profile is set against the unavoidable backdrop of cyclical end-markets, evidenced by the current bifurcation in performance between its robust mining segment and a challenged construction equipment business that has exerted pressure on near-term margins.

The company’s core business is anchored by a large installed base of equipment that generates a significant stream of recurring aftermarket revenue, providing a crucial element of stability through the economic cycle. For the full year 2024, Epiroc reported record-high revenues of SEK 63.6 billion, yet experienced a compression in its adjusted operating margin to 19.8% from 21.7% in the prior year, a decline attributed primarily to weakness in its construction-related segments and the dilutive effect of recent acquisitions.¹

Epiroc’s corporate strategy is unequivocally centered on innovation and technological leadership. This is demonstrated by record investments in research and development, which exceeded SEK 2 billion in 2024, and a disciplined, value-accretive M&A program designed to acquire key technologies and expand market access.³ This strategy is yielding tangible results, including the company’s largest-ever contract, a SEK 2.2 billion agreement with Fortescue to deliver a fully autonomous and electric surface mining fleet, validating its technological prowess and market leadership.⁴

The primary long-term opportunity for Epiroc lies in capitalizing on the mining industry’s paradigm shift toward safer, more productive, and less carbon-intensive operations. The company’s comprehensive offerings in Battery-Electric Vehicles (BEVs), OEM-agnostic automation platforms, and digital solutions position it as a key enabler of this transformation. This is complemented by the steady growth potential of its high-margin, recurring service and consumables business.

Nevertheless, significant risks persist. The company’s fortunes are inherently tied to the volatility of commodity prices and the capital expenditure cycles of its mining customers. Intense competition from well-capitalized peers, execution risk associated with the widespread adoption of new technologies, and the ongoing operational and margin drag from the weak construction market represent the principal challenges.

Ultimately, Epiroc should be viewed not merely as a manufacturer of heavy equipment, but as a critical technology and solutions provider for the future of the mining and infrastructure industries. The core analytical challenge for an investor is to look through the near-term cyclical headwinds and margin pressures to assess the long-term, durable value-creation potential stemming from its technological moat and resilient, service-oriented business model.

Company Overview: A Focused Leader in Mining and Infrastructure

The Post-Spinoff Strategy: A “150-Year-Old Start-Up”

Epiroc AB was established as an independent, publicly traded company in June 2018, following its spin-off from the Swedish industrial conglomerate Atlas Copco.⁶ While a newly listed entity, the company inherited a 150-year legacy in the mining and rock excavation sector, leading management to characterize the firm as a “150-year-old start-up”.⁶ The strategic rationale for the separation was clearly articulated by Atlas Copco’s board: the industrial-focused businesses and the mining and civil engineering businesses served fundamentally different end-markets, were subject to different demand drivers and cyclical patterns, and had limited operational synergies.⁸

This separation was a pivotal strategic decision. It created a “pure-play” entity, allowing for a more dedicated management focus, a tailored research and development (R&D) strategy, and a capital allocation policy aligned with the long and often volatile cycles of the mining industry. Prior to 2018, the mining business’s performance and capital needs were evaluated within the context of a broader industrial group with disparate cyclical profiles. As an independent company, Epiroc can now align its entire corporate strategy—from R&D spending to M&A and dividend policy—with the specific needs and long-term trends of its core markets. This focused structure enables greater agility and speed in decision-making, which is critical for a company aiming to lead a technology-driven transformation in a traditional industry.⁶ The spin-off was therefore not simply a financial engineering event but a strategic repositioning that allows the company to more aggressively pursue its leadership in automation and electrification—capital-intensive, long-term initiatives well-suited for a focused company but potentially more challenging to prioritize within a diversified conglomerate.

Core Business Segments: A Tale of Two Markets

Epiroc’s operations are organized into two primary business segments: Equipment & Service and Tools & Attachments. Recent performance data reveals a significant divergence between the end-markets these segments serve. The Equipment & Service division, which houses the company’s large mining equipment and related service contracts, has benefited from strong customer activity. In contrast, the Tools & Attachments segment, which has greater exposure to the global construction industry, has faced significant headwinds.

This dichotomy is evident in the company’s recent financial reports. For the second quarter of 2025, the Equipment & Service segment reported positive organic order growth of 2%, driven by high mining activity.¹⁰ The Tools & Attachments segment also posted 2% organic order growth, but management commentary explicitly noted that this was achieved despite weak demand for construction attachments, which negatively impacted overall profitability.⁵ The profitability gap between the segments is stark: in Q2 2025, the adjusted operating (EBIT) margin for Equipment & Service was a robust 23.0%, whereas the margin for Tools & Attachments was substantially lower at 12.9%.¹⁰ This dynamic has been exacerbated by the 2024 acquisition of Stanley Infrastructure, a major manufacturer of attachments, which was cited as a key factor in the dilution of group-level operating margins.³

Segment	Metric	FY 2023 (MSEK)	FY 2024 (MSEK)	Q2 2025 (MSEK)
Equipment & Service	Orders Received	51,032	48,100	11,506
	Revenues	48,879	48,531	11,435
	Adjusted Operating Profit	11,353	10,724	2,626
	Adjusted EBIT Margin	23.2%	22.1%	23.0%
Tools & Attachments	Orders Received	15,317	15,509	3,743
	Revenues	15,251	15,068	3,665
	Adjusted Operating Profit	2,137	1,861	474
	Adjusted EBIT Margin	14.0%	12.4%	12.9%
Group Total	Orders Received	66,349	63,609	15,276
	Revenues	60,343	63,599	15,130
	Adjusted Operating Profit	13,183	12,585	2,984
	Adjusted EBIT Margin	21.7%	19.8%	19.7%

Note: FY 2023 and FY 2024 figures are derived from company reports.¹ Q2 2025 figures are from the Q2 2025 investor presentation.¹⁰ Segment-level adjusted EBIT for FY periods is estimated based on reported figures and may not sum precisely due to inter-segment eliminations and unallocated items. The table is constructed to illustrate the performance divergence.

The Aftermarket Moat: Resilience Through the Cycle

The cornerstone of Epiroc’s business model is its large and highly resilient aftermarket business, which encompasses services, spare parts, and consumables. This segment provides a significant stream of recurring revenue that serves as a powerful counterbalance to the inherent cyclicality of new equipment sales. In 2023, aftermarket activities accounted for approximately 68% of total orders received, a figure calculated from the reported 32% share for new equipment.⁶ This mix has remained stable, with aftermarket revenues constituting 67% of the total in the second quarter of 2025.¹⁰ The company’s strategy explicitly targets maintaining a high proportion of this recurring business.¹

This business model structure makes Epiroc fundamentally less volatile than a pure-play equipment manufacturer. The mining industry is famously cyclical, with demand for new machines closely tied to volatile commodity prices and the capital expenditure (CapEx) budgets of mining operators.¹¹ During industry downturns, miners often delay or cancel large CapEx projects, causing new equipment sales to plummet. However, to maintain ongoing production from their existing assets, they must continue to service, repair, and purchase consumables (such as drill bits and tools) for their installed fleet. This operational necessity creates a durable baseline of demand for Epiroc’s aftermarket offerings, which are linked to equipment utilization rates rather than new equipment sales. This large aftermarket component acts as a “flywheel,” smoothing the peaks and troughs of the equipment cycle and resulting in more predictable cash flows and a higher quality of earnings compared to peers with a lower service mix. This directly addresses the resilience of the aftermarket business during downturns.

Industry Analysis: Navigating the Mining Supercycle and Technological Shift

Global Mining & Construction Outlook

The macro environment for Epiroc is shaped by a complex interplay of powerful, and at times conflicting, forces. The global mining industry is experiencing a structural shift driven by the energy transition, which is creating sustained demand for critical minerals such as copper, lithium, and nickel needed for electrification and battery technologies.¹² This provides a long-term tailwind for mining activity and, by extension, for the equipment and services Epiroc provides. Concurrently, mining companies are increasingly shifting their capital expenditure priorities from simple maintenance to expansion projects that incorporate advanced technology to boost productivity and enhance safety, a trend that directly benefits Epiroc’s high-tech offerings.¹³

However, this positive mining outlook is juxtaposed with significant challenges. Geopolitical tensions are leading to the fragmentation of global supply chains and a rise in resource nationalism, which can disrupt operations and investment flows.¹⁵ While this could disrupt supply chains for manufacturers like Epiroc, it may also stimulate investment in politically stable mining jurisdictions where the company has a strong established presence. In stark contrast to the mining sector, the global construction market has remained weak, particularly impacting demand for the company’s attachments business.³

The nature of demand within the mining industry is undergoing a fundamental change, moving beyond a simple focus on production volume to an emphasis on value, efficiency, and sustainability. Historically, mining cycles were driven by broad-based demand for bulk commodities. The current cycle is more nuanced, driven by the specific material requirements of the energy transition and intense pressure from investors and regulators to improve environmental performance and worker safety.¹² This means mining operators are not just looking to extract more ore; they are seeking to do so more intelligently. They require equipment that is more precise, less carbon-intensive (such as BEVs), and reduces the need for human operators in hazardous environments (automation). This structural shift plays directly to Epiroc’s core strategic strengths in innovation, automation, and electrification. Consequently, Epiroc is positioned not just as a beneficiary of a cyclical upswing but as a key enabler of a secular transformation within the industry.

Competitive Landscape: A Segmented Battlefield

The mining equipment market is moderately fragmented, featuring a few large, global players. Epiroc’s primary competitors are its Swedish counterpart Sandvik AB, and the industry behemoths Caterpillar Inc. and Komatsu Ltd..¹⁷ The competitive dynamics are best understood by segment. In the underground hard-rock mining niche, Epiroc and Sandvik are the clear market leaders, engaging in intense competition based on technology, performance, and service networks.²⁰ Both firms are pursuing similar strategies centered on electrification, automation, and a strong aftermarket presence.

In the surface mining market, Epiroc competes with the much larger and more diversified Caterpillar and Komatsu, which possess vast global dealer networks and a commanding presence in large-scale earthmoving equipment.²⁰ Here, Epiroc’s strategy appears to be one of technological disruption rather than a head-on challenge across the entire product portfolio. By focusing on advanced solutions like fully autonomous and battery-electric surface drill rigs, Epiroc aims to carve out a leadership position in the next generation of surface mining technology.

Company	Ticker	Market Cap (USD)	LTM Revenue (USD)	LTM EBIT Margin (%)	Aftermarket % of Revenue (Est.)	P/E Ratio (Normalized)
Epiroc AB	EPI-B.ST	23.95 B	6.0 B	19.8%	~67%	24.7
Sandvik AB	SAND.ST	31.6 B	11.9 B	17.3%	~65-70%	20.3
Caterpillar Inc.	CAT	195.1 B	64.8 B	20.2%	~37%	21.6
Komatsu Ltd.	6301.T	27.2 B	27.1 B	16.0%	~50-55%	10.3

Note: Data as of mid-2025, compiled from various sources.²¹ Market cap and revenue are approximate and converted to USD for comparison. LTM Revenue and EBIT Margin are based on the most recent full-year or trailing twelve-month data available. Aftermarket percentages are estimates based on company disclosures and segment reporting. P/E Ratios are based on normalized earnings where available. Caterpillar’s figures represent the entire company, not just the Resource Industries segment.

This comparison highlights the distinct profiles of the competitors. Epiroc and Sandvik exhibit higher operating margins and a significantly larger share of revenue from the more stable aftermarket, which supports their premium valuations relative to Komatsu. Caterpillar, while a formidable competitor, has a different business mix with a lower, albeit very large, aftermarket component.

The Technology Transformation: Automation, Digitalization, and Electrification

Epiroc has established itself as a leader across the three defining technology trends shaping the modern mining industry. By the end of 2024, the company’s installed base of automated equipment surpassed 3,450 driverless machines, a 21% increase year-over-year.³ This leadership is further evidenced by a 30% growth in orders for its digital solutions in 2024 and a doubling in the operational use of its BEV machines during the same period.³

The company’s strategy is to deliver an integrated digital ecosystem, branded “6th Sense,” which connects machines, systems, and personnel to enable a smart, safe, and seamless operation.²⁹ A critical and differentiating element of this strategy is its “OEM-agnostic” approach to automation. Epiroc develops control systems and software that can be retrofitted onto mixed fleets, encompassing equipment from any manufacturer, not just its own.³¹ This approach dramatically expands the company’s addressable market beyond its own installed base, allowing it to sell high-margin technology solutions to customers operating Caterpillar, Komatsu, or other competing equipment. This transforms Epiroc’s competitive position from a hardware supplier to a potential software and solutions provider for the entire industry.

In electrification, Epiroc’s offering is similarly comprehensive. It extends beyond the vehicles themselves to include the necessary charging infrastructure, power management systems, and innovative commercial models like “Batteries as a Service” (BaaS), where customers pay for battery usage rather than owning the asset outright.³² This full-scope approach is designed to de-risk and accelerate the electrification journey for its customers.

Financial Performance and Condition (2022-2025)

Revenue and Order Analysis

Epiroc’s top-line performance in recent years reflects the dual realities of its end markets. The company achieved a record-high revenue of SEK 63.6 billion in 2024, representing a 5% increase over 2023, a result supported by contributions from acquisitions and robust demand from its mining customers.² However, more recent results indicate a moderation in growth and significant currency headwinds. In the second quarter of 2025, reported revenues decreased by 8% year-over-year to MSEK 15,130. This headline decline masks a resilient underlying performance, as organic growth was +1% when excluding a substantial negative currency translation impact of -9%.⁵

Order intake, a key leading indicator for future revenue, has shown similar trends. Q2 2025 orders received decreased 7% on a reported basis to MSEK 15,276, but grew 2% organically.⁵ The company’s book-to-bill ratio stood at 101% in the quarter, suggesting that order intake is marginally outpacing revenue recognition, which provides a degree of stability for near-term revenue forecasts.³⁵ The divergence in end-market demand is clear in the order book, with management consistently highlighting high mining customer activity, particularly for automation and electrification solutions, while citing persistent weakness in the construction sector.⁵

Profitability and Margin Analysis: The Core Challenge

A central element of Epiroc’s investment case has been its industry-leading profitability. However, this has come under pressure. The company’s adjusted operating margin experienced a notable compression, declining from 21.7% in 2023 to 19.8% for the full year 2024.¹ This trend continued into 2025, with the Q2 adjusted margin holding flat year-over-year at 19.7%.⁵

Management has been transparent about the drivers of this margin pressure. The primary factors are twofold:

1. Negative Market Mix: The persistent weakness in the construction industry has a direct negative impact on the Tools & Attachments segment. This segment carries structurally lower margins than the Equipment & Service business, and reduced volumes lead to negative operating leverage, further pressuring profitability.¹
2. Acquisition Dilution: Epiroc’s active M&A strategy, while strategically sound, has introduced a near-term drag on margins. The acquisition of Stanley Infrastructure, a large attachments business with profitability below Epiroc’s group average, was a significant contributor. In Q4 2024, acquisitions had a dilutive impact of 1.4 percentage points on the group’s operating margin.³

The company is actively implementing “efficiency measures,” including the consolidation of manufacturing sites, to counteract these headwinds and support profitability.⁵ However, the path back to its historical 21%+ margin profile appears dependent on either a cyclical recovery in the construction market, which would improve mix and operating leverage, or a significant acceleration in the growth of its highest-margin technology and digital solutions offerings, which could lift the group’s overall margin profile even in a stagnant construction environment.

Cash Flow Generation and Balance Sheet Strength

Despite margin pressures, Epiroc continues to demonstrate robust cash generation capabilities. Operating cash flow was strong in 2024, increasing by 47% to MSEK 9,132.¹ The company maintains a healthy cash conversion rate, which stood at 94% on a rolling 12-month basis as of Q2 2025.⁵ This consistent ability to convert accounting profits into cash is a significant financial strength.

The balance sheet remains solid and provides ample flexibility. The key leverage metric, Net Debt to EBITDA, was 0.82 at the end of Q2 2025, a comfortable level that is well within the parameters for an investment-grade credit rating.⁵ The company’s stated financial policy is to maintain this investment-grade status, ensuring access to capital markets through the cycle.¹ This strong financial position underpins Epiroc’s ability to simultaneously fund its strategic priorities—internal R&D, external M&A, and shareholder returns—without compromising its financial stability.

Capital Allocation and Strategic Initiatives

Innovation and R&D: Fueling the Future

Epiroc’s capital allocation strategy prioritizes investment in innovation to maintain and extend its technological leadership. In 2024, the company invested a record amount of more than SEK 2 billion in R&D.³ As a percentage of revenue, R&D spending was 3.3% in Q2 2025, a significant commitment for an industrial company.¹⁰ This investment is not broadly distributed but is sharply focused on the three core pillars of its technology strategy: automation, digitalization, and electrification.³⁶ This level of spending is a clear indication that Epiroc is competing on the basis of technological differentiation and value creation for its customers, rather than on price. These investments are essential for developing the next generation of autonomous equipment, BEV platforms, and digital solutions that are expected to drive the company’s future growth and fortify its competitive advantages.

M&A Strategy: Acquiring Technology and Market Access

Mergers and acquisitions are a key pillar of Epiroc’s growth strategy, employed to accelerate its technological roadmap and strengthen its market position. Between 2022 and 2024, the company executed a series of targeted acquisitions. These transactions were strategically focused on acquiring critical capabilities in automation and digitalization, such as Remote Control Technologies (RCT) and ASI Mining (autonomous solutions), and collision avoidance systems through Mernok Elektronik.³⁷ Other acquisitions, like CR (ground engaging tools) and the larger Stanley Infrastructure (attachments), were aimed at bolstering its product offerings in core and adjacent markets.³⁷

In 2024 alone, Epiroc completed five acquisitions.² While strategically compelling, this active M&A program carries integration risk and can, as demonstrated by the Stanley Infrastructure deal, be dilutive to group margins in the short term.³ The company’s decision to acquire the remaining shares of ASI Mining in July 2024, followed by the opening of a new Surface Mining Automation Center in Utah dedicated to the former ASI team, underscores the strategic imperative of building out its OEM-agnostic autonomous solutions platform.³⁷

Shareholder Returns: A Stable and Rising Dividend

Epiroc’s policy for shareholder returns is designed to be both shareholder-friendly and sustainable through the industry’s inherent cycles. The company aims to provide a “long-term stable and rising dividend,” with a target payout ratio of 50% of net profit measured over a business cycle.¹ This through-cycle approach is a prudent recognition of earnings volatility, allowing the company to maintain a stable dividend even if profits fluctuate in a given year.

For the 2024 fiscal year, the Board proposed a dividend of SEK 3.80 per share, which was unchanged from the prior year and is distributed to shareholders in two equal semi-annual installments.³ The decision to maintain a flat dividend, despite record earnings, can be interpreted as a conservative measure in light of the prevailing margin pressures and uncertain macroeconomic outlook. In addition to dividends, Epiroc engages in share repurchase programs. However, these are primarily technical in nature, designed to cover the company’s obligations under its performance-based long-term incentive plans for employees, rather than being a primary vehicle for returning capital to shareholders.⁴⁰

Growth Opportunities & Forward-Looking Analysis

Leading the Charge in BEVs and Automation

Epiroc’s most significant long-term growth opportunity lies in its leadership position in the electrification and automation of mining operations. The market for mining automation is forecast to expand at a compound annual growth rate (CAGR) of approximately 7.2% between 2024 and 2029, reaching a market size of over USD 5 billion.⁴³ Similarly, the market for electric drive mining trucks is projected to grow to over USD 800 million by 2031.⁴⁵

The company’s landmark contract with Fortescue Metals Group, valued at SEK 2.2 billion over five years, is a powerful validation of its strategy and technological capabilities. This agreement, the largest in Epiroc’s history, is for the delivery of a complete fleet of fully autonomous and battery-electric surface mining equipment.⁴ This contract serves as a critical proof-point that the industry’s transition to autonomous and electric mining is not a distant theoretical concept but a present-day commercial reality. It provides Epiroc with a marquee reference case that can be leveraged to secure further large-scale, transformative contracts with other major mining operators.

The adoption of these advanced technologies is being driven by increasingly compelling economic arguments, in addition to environmental and safety benefits. Early motivations for BEV adoption centered on ESG factors, such as eliminating underground diesel particulate emissions and reducing carbon footprints.¹⁶ However, real-world operational data is now demonstrating a clear productivity and cost-saving advantage. For example, a BEV trolley truck system deployed at Boliden’s Kristineberg mine in Sweden resulted in a 23% increase in productivity and a 25% reduction in maintenance costs compared to its diesel equivalent.¹⁰ Similarly, a BEV fleet at a mine in South Africa demonstrated an 11% increase in tonnes moved per hour and, critically, a 42% reduction in ventilation requirements—a major operating expense for underground mines.¹⁰ As these technologies transition from being “nice-to-have” ESG initiatives to “must-have” tools for enhancing productivity and lowering operating costs, the demand for Epiroc’s advanced equipment is expected to become more durable and less discretionary.

Expanding the High-Margin Service Business

Beyond new equipment, a substantial growth vector for Epiroc is the continued expansion of its high-margin service and digital solutions business. Order intake for the company’s digital solutions grew by an impressive 30% in 2024, indicating strong customer demand for technologies that enhance operational intelligence.³ Epiroc is strategically focused on providing a suite of technology-agnostic solutions that improve safety, productivity, and sustainability across the entire mine site. These offerings range from establishing critical communication networks to providing advanced data management, fleet health monitoring, and operational analytics.⁴⁶

There is a significant opportunity to increase the penetration of these digital services within Epiroc’s vast existing customer base. By embedding its software and technology into its customers’ core operational workflows, Epiroc can create stickier, long-term relationships, increase switching costs, and generate a growing stream of high-margin, recurring revenue. This shift further enhances the quality and predictability of the company’s earnings profile.

Risk Assessment

Macroeconomic and Cyclical Risks

The primary risk associated with Epiroc is its inherent exposure to the cyclical nature of the global mining and construction industries. The financial performance of mining companies, and consequently their capital expenditure budgets, is highly correlated with commodity prices, particularly in the short term.⁴⁷ A sharp or prolonged downturn in the prices of key commodities such as copper, gold, and iron ore would almost certainly lead to the deferral or cancellation of orders for new equipment. While the company’s extensive aftermarket business provides a significant cushion against this cyclicality, it is not entirely immune. A severe downturn that leads to widespread mine curtailments or closures would reduce the size of the active installed base, thereby lowering the demand for services and consumables. Key leading indicators for Epiroc’s business performance that warrant close monitoring include global manufacturing Purchasing Managers’ Indexes (PMI), key commodity price indices, and, most directly, the publicly announced capital expenditure plans of major mining corporations.

Competitive and Execution Risks

Epiroc operates in a highly competitive environment, facing formidable rivals such as Sandvik, Caterpillar, and Komatsu, all of which are making substantial investments in their own automation and electrification programs.²⁰ The primary competitive risk is that a rival could develop a superior technology that leapfrogs Epiroc’s current offerings, eroding its technological advantage. Furthermore, there are significant execution risks associated with the widespread adoption of BEVs and autonomous systems. These technologies face real-world hurdles, including high upfront capital costs for miners, limitations in current battery technology (such as range and charging times), and the need for significant and costly upgrades to mine-site electrical infrastructure.¹⁶ A slower-than-anticipated adoption curve by the mining industry would delay the realization of one of Epiroc’s most important long-term growth drivers.

Operational Risks

As a global manufacturer with a complex supply chain, Epiroc is exposed to a range of operational risks. The 2022-2024 period highlighted the company’s vulnerability to global supply chain disruptions and significant input cost inflation for raw materials like steel, as well as for components and labor.⁵⁰ While these inflationary pressures have moderated from their post-pandemic peaks, the ongoing trend of geopolitical fragmentation and trade tensions presents a persistent risk to the stability and cost-effectiveness of global supply chains.¹⁵ Although Epiroc actively mitigates these risks through its global manufacturing footprint and by optimizing logistics and supplier relationships, unforeseen disruptions or a resurgence in cost inflation could exert renewed pressure on the company’s operating margins.⁵

Valuation Analysis

Historical Valuation Context

Valuing a highly cyclical company like Epiroc requires a nuanced approach that looks beyond single-period metrics. Since its listing in 2018, the company’s valuation multiples, such as its price-to-earnings (P/E) ratio, have fluctuated, reflecting the market’s evolving perception of its position within the mining investment cycle.²¹ As of mid-2025, Epiroc trades at a normalized P/E ratio of approximately 24.7 and a price-to-sales (P/S) ratio of around 3.7.²¹ The primary challenge in interpreting these figures is that earnings-based multiples for cyclical companies can be misleading. A P/E ratio will often appear deceptively low at the peak of a cycle when earnings are inflated, and conversely, appear excessively high at the bottom of a cycle when earnings are depressed.⁵³ Therefore, a simple comparison of the current P/E ratio to its historical range is insufficient without a thorough analysis of the company’s current position in its earnings cycle.

Peer Group Valuation

A comparison with its direct competitors provides valuable context. Epiroc typically trades at a premium to its peer group on most metrics. Its P/S ratio of 3.7x is higher than that of Caterpillar (3.2x) and substantially higher than Komatsu (1.1x).²¹ Its P/E ratio is comparable to Caterpillar’s but represents a significant premium to Komatsu’s.²¹ This valuation premium can be justified by several fundamental factors: Epiroc’s superior and more stable operating margin profile, its significantly higher proportion of revenue from the resilient aftermarket segment, and its perceived leadership in the high-growth technology areas of automation and electrification. A key analytical question is whether the current premium fully and fairly reflects these structural advantages or if it presents a risk of multiple contraction should the company’s execution falter or its margin profile deteriorate.

Intrinsic Value (DCF) and Cyclical Adjustments

A discounted cash flow (DCF) analysis is a cornerstone of intrinsic value assessment, but for a cyclical company like Epiroc, a standard model that simply extrapolates recent performance can lead to a flawed valuation. The correct application of a DCF methodology requires specific adjustments to account for cyclicality.⁵⁴

• Normalized Earnings: The most critical adjustment is the use of “normalized” or “through-cycle” earnings and cash flows as the basis for the forecast. Instead of using the results from a peak or trough year, an analyst should calculate the company’s average performance (e.g., revenue growth, EBIT margin, cash conversion) over a full business cycle, typically spanning 5-7 years. This normalized baseline provides a more realistic and sustainable foundation for long-term projections.
• Scenario Analysis: Given the uncertainty in both commodity cycles and the pace of technology adoption, a robust valuation should incorporate multiple, probability-weighted scenarios.⁵⁵ For Epiroc, these could include a “Sustained Mining Upswing” scenario, a “Global Cyclical Downturn” scenario, and a “Rapid Technology Adoption” scenario. This approach allows for the quantification of a range of potential outcomes rather than relying on a single deterministic forecast.
• Terminal Value Considerations: The assumptions underpinning the terminal value calculation are paramount. The terminal growth rate should be conservative, reflecting long-term global GDP growth. Furthermore, if an exit multiple is used, it should be based on a normalized, mid-cycle multiple, not the multiple observed at a specific point in time, which could be inflated or depressed by current market sentiment.

The valuation of Epiroc is ultimately less about precisely forecasting the next quarter’s earnings and more about forming a well-reasoned view on the long-term, sustainable profitability of the business through its cycles, and the terminal value created by its durable technological and aftermarket-driven competitive advantages. A sophisticated valuation must therefore incorporate both a cyclical adjustment for the core business and a separate, scenario-based forecast for the adoption and profitability of its transformative new technologies.

Works cited

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