Overview
J.P. Morgan has put forward a list of preferred stocks in the European capital goods sector, singling out Siemens Energy, Schneider Electric, Vestas, IMI and Metso as its top picks in a research note published Thursday. The brokerage argues that while wider macro uncertainty has pressured equity prices, the sector’s direct commercial exposure to the Middle East conflict remains limited.
Regional exposure and supply-chain considerations
The note states that, across the bank’s 43-stock coverage, average revenue exposure to the Middle East is roughly 3%. J.P. Morgan points to local-for-local production models as a mitigating factor for supply-chain disruption, and it says input-cost inflation has in some instances been a net positive for producers within the sector.
Within that coverage, the report identifies Rotork as carrying the largest regional exposure, at around 10% of group revenue, and notes that approximately 75% of that exposure is tied to oil and gas activity.
Company-level views and valuation metrics
Siemens Energy is rated "overweight" with a €200 price target. The brokerage reports the stock trades at approximately 30x fiscal year 2027 price-to-earnings and about 21x on an EV/EBIT basis. The analysts highlight Gas Services free cash flow, saying it "could justify much of the current valuation," and cite slot reservation agreements that extend the business outlook into the 2030s. The note also records that around 35% of new equipment gas turbine orders in fiscal year 2025 originated from the Middle East, while stressing that Siemens Energy’s geographically diverse backlog limits concentration risk.
Schneider Electric also carries an "overweight" rating with a €325 price target. The brokerage states the stock trades at roughly 23x fiscal 2027 P/E and 18x EV/EBIT. It underscores Schneider’s 7-10% organic growth guidance to 2030, calling it "best in class and credible," and points to approximately 25% of group sales tied to data centre exposure. The analysts add that "The energy efficiency theme could well make a comeback among households and businesses as one of the most obvious ways to reduce their energy bills."
Vestas is another "overweight" pick, with a Danish crown 212 price target. J.P. Morgan reports the shares trade at 18.3x/14.0x EV/adjusted EBIT on 2026/2027 estimates. The brokerage notes Vestas still trades at about a 16% relative valuation discount to the sector despite having recovered from a discount of more than 40% to its 2014 average recorded in mid-2025.
For IMI, the analysts assign an "overweight" rating with a 3,100 pence target and say the stock trades at a 16% discount to its synthetic peer group on 15.4x/13.9x 2026/2027 EV/EBITA. IMI’s Middle East exposure is reported as around 6% of group revenue, with more than half concentrated in Saudi Arabia. The brokerage forecasts free cash flow exceeding £700 million in 2026-2027.
Metso is rated "overweight" at €17.5 and, according to the note, trades at 15.5x/13.1x 2026/2027 EV/EBITA, representing a discount versus peers. The firm’s minerals commodity mix is cited as being 41% copper, and J.P. Morgan projects a group margin of 18.4% for 2028, above the sell-side consensus of 17.8%.
Sector leverage, macro assumptions and valuation gap
The brokerage reports that the European Investment Grade Capital Goods sector carries average net leverage of approximately 1x. Its broader coverage averages 0.7x net debt to EBITDA for 2026. On macro assumptions, J.P. Morgan’s economics team embedded two European Central Bank rate hikes into its forecast and assumed Brent crude averages $100 per barrel in the second quarter of 2026.
Finally, the analysts flag that European capital goods names currently trade at about a 20% discount to U.S. peers on a 12-month forward P/E basis, compared with a long-term average discount of 7%.
Key takeaways
- J.P. Morgan favors Siemens Energy, Schneider Electric, Vestas, IMI and Metso within European capital goods.
- Average Middle East revenue exposure across the brokerage’s 43-stock coverage is roughly 3%, and many firms have local production models that limit supply-chain risk.
- European capital goods trade at a notable discount to U.S. peers on forward P/E, while sector leverage remains modest at around 1x on average.
Risks and uncertainties highlighted in the note
- Regional exposure concentrations - certain companies, such as Rotork and IMI, show higher Middle East revenue shares (around 10% and 6% respectively), creating greater sensitivity to local market developments; sectors affected include oil and gas and industrial equipment.
- Macroeconomic assumptions - the brokerage’s forecasts incorporate two ECB rate hikes and a Brent crude assumption of $100 per barrel in Q2 2026; deviations from these assumptions could affect valuations across the capital goods sector, notably energy-related and heavy machinery firms.
- Order and backlog concentration - while Siemens Energy reports a geographically diverse backlog, the fact that 35% of new equipment gas turbine orders in fiscal 2025 came from the Middle East underlines concentration risk for turbine and power-equipment suppliers.