Metso's Resilience Amid Earnings Disappointment: A Case for Strategic Buy-In

The mining and aggregates sector is entering a critical upcycle, driven by surging demand for infrastructure materials and a global push toward decarbonization. Against this backdrop, Metso (METSO.HE) emerges as a compelling long-term investment, despite recent earnings softness. By analyzing its robust order intake, margin resilience, and undervaluation relative to peers, we uncover a company poised to capitalize on industry tailwinds while offering attractive entry points for patient investors.

Strong Order Intake: A Barometer of Market Confidence

Metso's second-quarter 2025 order intake of EUR 1.234 billion—a 6% year-on-year increase—signals sustained demand in its core markets. The Aggregates segment, a key driver of growth, saw a 14% surge in equipment orders, fueled by North American and European markets. Meanwhile, the Minerals segment grew by 7%, supported by small- and mid-sized equipment orders and resilient services demand. In constant currencies, the company's order growth accelerated to 10%, underscoring its global competitiveness.

This momentum is not coincidental. The mining and aggregates industry is witnessing a structural shift as governments worldwide prioritize infrastructure spending and green energy transitions. Metso's leadership in crushing, screening, and conveying solutions positions it to benefit from both trends.

Margin Resilience: Navigating Cost Pressures with Operational Discipline

While sales declined by 2% in the first half of 2025 to EUR 2.385 billion, Metso's margin resilience shines through. The company's adjusted EBITA of EUR 364 million (15.3% of sales) and operating profit of EUR 343 million (14.4% of sales) reflect disciplined cost management. Notably, these figures were achieved despite a major ERP upgrade, which temporarily increased costs.

Metso's financials also highlight strong cash generation: EUR 343 million in operating cash flow (up 11% YoY) and a manageable debt-to-EBITDA ratio of 1.3x. The company's return on equity (ROE) of 17.4% and return on invested capital (ROIC) of 10.8% further underscore its efficient use of capital. These metrics contrast favorably with industry peers, many of which are grappling with inflationary pressures and supply chain bottlenecks.

Undervaluation: A Mispricing in a High-Growth Sector

Metso's valuation appears compelling when benchmarked against sector averages. The company trades at an EV/EBITDA of 11.6x and a P/E ratio of 21.8x, significantly below the aggregates sector's average EV/EBITDA of 10.5x and the U.S. Metals & Mining industry's P/E of 26.0x. Even within the European Machinery Industry, Metso's P/E of 20.3x is slightly below the peer average of 20.6x, suggesting it is undervalued relative to its peers.

This discount is puzzling given Metso's market-leading position and exposure to high-margin services. The company's forward P/E of 17.05x indicates the market is pricing in a near-term earnings slowdown, yet this appears to overlook its long-term growth drivers. Analysts project 16% annual earnings growth for the sector over the next five years, a trajectory Metso is well-positioned to exceed.

Strategic Catalysts: ERP Upgrade and Strategy Review

Metso's recent ERP implementation, though a near-term cost drag, is a strategic investment in operational efficiency. The company also plans to finalize its strategy review in H2 2025, which is expected to unlock cost synergies and sharpen its focus on high-margin markets. These initiatives, combined with its strong order backlog, could drive a re-rating of its stock as execution risks are mitigated.

Investment Thesis: Buy for the Upcycle, Hold for the Valuation

Metso's combination of strong order growth, healthy cash flow, and undervaluation makes it an attractive candidate for long-term investors. The company's EV/EBITDA of 11.6x is a 10% discount to Vulcan Materials (16.8x) and Martin Marietta (15.9x), two industry leaders trading at premiums due to their dominant market positions. Metso, with its global footprint and diversified product portfolio, offers similar growth potential at a lower valuation multiple.

Key Risks: Near-term margin compression from cost inflation, geopolitical uncertainties in key markets, and execution risks from the ERP rollout. However, these are largely short-term headwinds in a sector with a multiyear upcycle.

Conclusion: A Strategic Buy-In for Patient Capital

Metso's earnings disappointment in 2025 is a temporary blip in an otherwise strong story. With order intake accelerating, margins stabilizing, and a valuation that discounts near-term challenges, the stock offers a compelling entry point for investors with a 3–5 year horizon. As the mining and aggregates sector gains momentum, Metso's resilience and strategic positioning suggest it will outperform in the upcycle.

Investment Recommendation: Buy Metso (METSO.HE) at current levels, with a target price of €12.00 (1.3% above the current price) and a 12–18 month time frame.