Investing.com -- Citi Research has raised its target price for Airbus Group SE (EPA:AIR) stock to €184, up from €182.
While Airbus is now aiming for the lower end of its 2024 delivery guidance, at 750 aircraft instead of a possible high of 770, Citi analysts see this as a prudent adjustment given current production and supply chain challenges.
Despite this reduction, the long-term growth prospects for Airbus remain solid, and Citi maintains its "buy" rating on the stock, flagging the aerospace giant’s position in a market with strong demand for commercial aircraft and an expected ramp-up in delivery rates by the latter part of the decade.
In its recent quarterly update, Airbus reaffirmed its 2024 delivery guidance but acknowledged a realistic shift to the lower end of the range as supply chain difficulties persist.
“We have reduced our 2024 deliveries from 770 to 750, the low end of company guidance of “around 770” meaning 770 +/- 20,” said analysts at Citi Research.
This change has led to a slight downward revision in near-term profit expectations, with the 2024 EBIT forecast reduced by about 5% to €5.25 billion, and anticipated cash flow down 15% to €3 billion.
These lower figures reflect the economic impact of delivering fewer aircraft this year, yet Citi analysts said that the company’s long-term growth potential and profitability are unchanged.
Citi analysts remain bullish on the company's broader outlook, emphasizing that Airbus’s current valuation does not fully reflect its potential to scale up production to rate 75 for its 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 rather than the targeted rate 75, leaving room for upside if Airbus meets its ramp-up goals.
This gap between market expectations and Airbus’s long-term capacity has contributed to the bank’s decision to maintain a positive rating on the stock, even with slight reductions in near-term forecasts.
Airbus faces considerable challenges, including supply chain delays and possible fluctuations in exchange rates, but Citi's analysis shows solid demand that is likely to persist, supporting high production levels.
Citi believes that once supply chain issues ease, Airbus will be well-prepared to meet the pent-up demand in the commercial aviation sector.
The long-term growth drivers, including an estimated 19% compounded annual profit growth rate from 2024 to 2029, reinforce Citi’s increased target price.
Additionally, Citi’s valuation for Airbus factors in a cash conversion rate that has been raised from 93% to 95% over the forecast period.
This improved cash flow efficiency has helped to balance out 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 incremental month allows Airbus to bring in cash flows sooner, a factor that modestly boosts the stock's fair value in the long term.
Despite these adjustments, Citi underscores that Airbus faces certain risks that could affect this forecast.
These include ongoing delivery uncertainties, possible shifts in global demand for air travel, currency fluctuations, and the complexity of Airbus’s business operations.
Shares of Airbus Group was trading 1.9% higher on Wednesday at €144.44.