Investing.com — Citi Research has raised its price target on Airbus Group SE (EPA:) shares from €182 to €184.
While Airbus is now targeting the lower end of its 2024 delivery guidance, at 750 aircraft instead of a possible maximum of 770, Citi analysts see this as a prudent adjustment given current manufacturing and supply chain challenges.
Despite this downgrade, long-term growth prospects for Airbus remain solid, and Citi maintains its buy rating on the stock, underscoring the aerospace giant’s position in a market with strong demand for commercial aircraft and an expected increase in delivery rates . towards the latter part of the decade.
In its recent quarterly update, Airbus reaffirmed its 2024 delivery expectations but acknowledged a realistic shift to the lower end of the range as supply chain issues persist.
“We have reduced our 2024 deliveries from 770 to 750, with the lower end of company guidance of “around 770” coming in at 770 +/- 20,” Citi Research analysts said.
This change has led to a slight downward revision to near-term earnings expectations, with the 2024 EBIT forecast reduced by around 5% to €5.25 billion, and expected cash flow reduced by 15% to €3 billion .
These lower figures reflect the economic impact of delivering fewer aircraft this year, but Citi analysts said the company’s long-term growth potential and profitability are unchanged.
Citi analysts remain optimistic about the company’s broader prospects, stressing that Airbus’ current valuation does not fully reflect its potential to scale production to 75 for the A320 family by 2027.
Airbus currently delivers about 52 aircraft per month and according to Citi, the market appears to have priced in a sustained rate of 60 aircraft per month instead of the target rate of 75, leaving room for gains if Airbus meets its growth targets.
This gap between market expectations and Airbus’ long-term capacity contributed to the bank’s decision to maintain a positive rating on the stock, even with slight downgrades to short-term forecasts.
Airbus faces significant challenges, including supply chain delays and potential currency fluctuations, but Citi’s analysis shows solid demand that is likely to continue, supporting high production levels.
Citi believes that once supply chain issues subside, Airbus will be well prepared to meet pent-up demand in the commercial aviation sector.
Long-term growth drivers, including estimated annual earnings growth of 19% between 2024 and 2029, reinforce Citi’s higher price target.
Additionally, Citi’s valuation for Airbus takes into account a cash conversion rate that increased from 93% to 95% over the forecast period.
This improved cash flow efficiency helped offset the impact of the lower 2024 profit projection and slightly worsened exchange rate assumptions.
Citi’s latest valuation benefits from a time value adjustment, as each additional month allows Airbus to capture cash flows sooner, a factor that modestly increases the stock’s fair value over the long term.
Despite these adjustments, Citi underlines that Airbus faces certain risks that could impact this forecast.
These include ongoing supply uncertainties, potential shifts in global air travel demand, currency fluctuations and the complexity of Airbus’ business operations.
Airbus Group shares traded 1.9% higher at €144.44 on Wednesday.
