Tenaris Earnings: Strength in Key End Markets Will Offset Decreasing Tubes Prices

After incorporating Tenaris’ TEN first-quarter results, we’re raising our fair value estimate to $37 (EUR 20) from $32 (EUR 15). Our improved outlook for Tenaris’ profitability potential drives most of the increase. By our estimate, the firmwide adjusted EBITDA margin will average 29% over the next five years, compared with our prior estimate of 24%. In short, we expect a more favorable product mix will offset normalizing tubes demand over the next five years. We still expect the currently advantageous pricing dynamics will abate over the next few quarters, however, we’re now more confident the firm will secure more margin-accretive revenue streams, further supported by internal cost management initiatives. Customers continue converting to Tenaris’ Rig Direct solution, which will optimize the firm’s demand planning, especially as product adoption persists. Both factors reflect longer-term developments, so most of the margin improvement falls around 2025 and beyond.

We maintain our outlook that revenue will increase 26% in 2023 and will steadily decline thereafter. Over half of Tenaris’ business resides in North America, where oil country tubular goods consumption has leveled off in recent months. Pricing will likely fall as supply and demand balance out, but we expect production activity will remain strong enough to support elevated tubes volumes through at least year-end. Accelerating production in the Middle East and offshore markets will serve as growth engines, moving forward. Low OCTG inventories in the Middle East will support a tight market over the near to medium term. Offshore markets will likely display similar demand dynamics over the next few years, but for higher-end products that will drive a more favorable product mix.