Deutz AG: Price rocket takes off – US expansion and military contracts as drivers!

Deutz AG: Price rocket takes off – US expansion and military contracts as drivers!

Deutz AG, a renowned manufacturer of drive systems, is currently making a name for itself. Since the beginning of the year, the shares of the Cologne mechanical engineering company have increased by a remarkable 80 percent and are currently trading at 7.40 euros. The technical analysts see a promising buy signal as soon as the 8 euro mark is broken, with a possible price target of up to 10 euros. This reports IT Boltwise.

A key driver behind this positive development is the increasing demand for industrial engines, especially in the construction machinery sector. There is also speculation about new military contracts that could boost demand for generator sets. These market changes have led to analysts at Warburg Research eyeing a target of 10.90 euros, while DZ Bank suggests a high estimate of 8.30 euros.

Expansion into the USA

Another key to Deutz’s success is its strategic expansion into the US market. The takeover of Overseas Logistics Services (OLS) in South Carolina has already been completed. OLS will be responsible for supplying spare parts to North American customers and recorded sales of approximately $45 million in 2024. This commitment aims to increase the high-margin service business from the current 25 percent to 30 percent of the total result. Sebastian Schulte, the CEO of Deutz, emphasizes the logistical expertise of OLS, which will also be used in the defense sector.

Gross margin will also benefit from this acquisition, making the company even more competitive, especially in the highly demanding off-highway market. Deutz is active in this industry in which the demand for reliable drive systems is unbroken, not least due to the advancing mechanization in agriculture and the increasing number of construction projects.

A look at the market

The market for off-highway vehicle engines shows significant growth opportunities. According to a recent research, the market size is estimated at $37.21 billion in 2023, with a forecast of $54.67 billion by 2029. Annual growth is reported at 6.79 percent. Europe is the region with the fastest growth. The need in the construction industry is seen as particularly strong, which strengthens the position of companies like Deutz. A report from Mordor Intelligence highlights that although the COVID-19 pandemic led to a short-term decline in sales, production and sales increased noticeably after the pandemic.

Additionally, stringent environmental norms to reduce carbon emissions are expected to positively impact the off-highway engine market. Not only manufacturers benefit from sustainable drives, be they diesel or electric, but also end users through lower operating costs and maintenance costs.

Overall, it shows that Deutz AG has cleverly positioned itself in a promising market. Investors are optimistic about the sustained profitability that could be generated by expanding the service business and expansion into the US, as well as the potential defense business. However, the question remains as to how the general economy and defense budgets will develop in order to maintain this euphoria.