Could Airbus Stocks Soar Even Higher?

Since the beginning of 2024, Airbus shares have grown by 13%, already 2 times faster than their average annual historical return! Is there any reason for such positivity in an industry that is unlikely to experience rapid growth? And can the company’s shareholders count on their capital to grow in the future? Let’s figure it out by making Airbus financials, rather than news background and rumors about the company, the object of careful analysis using the Eyestock Methodology.

First, a little info. Airbus has its shares listed on many exchanges, but the main one is Euronext Paris, where shares are traded under the ticker AIR.PA. Shares can also be purchased for US dollars on the OTC market if you find the ticker EADSF. The company reports quarterly, and the 1Q 2024 financial report was published on April 25. Based on it, we will study whether the company’s business is actually as good as its stock performance or whether the market price moved away from fair value?

Our approach and vision of investment decision

We like to repeat Buffett’s words: «It`s far better to buy a wonderful company at a fair price than a fair company at a wonderful price». Eyestock’s analysis is designed to help our clients answer these two questions: Is the company good enough and priced fairly?

Step 1. To find a wonderful company to invest use the Eyestock Rating. Once the rating is above 100, this company is wonderful.

Our rating is based on the comprehensive analysis of 10 key financial metrics across Profitability, Balance, Operating Efficiency, and Stability. The final rating for Airbus is a modest 52%. As you can see in the picture below, none of the 4 components of the score are ideal (25 pts or %).

Airbus’s earnings quality is pretty high, that is, the profit accrued in financial documents is fully (and even more) confirmed by cash flows. However, the net profit margin is only 6%, and the quarterly profit for the period ended 31-03-2024 amounted to 595M euros, and this is almost half as much as for the same period in 2022.

Airbus’s ROE (return on equity) is a solid 37%, but if we decompose it into ROA (return on assets) and the financial leverage, we will see that such a significant level is ensured primarily by the high contribution of borrowed capital to the formation of the asset, rather than by the net return of the assets themselves. Airbus`s ROIC (only 6%) is based on the analysis of only that part of the capital invested in operating activities confirms our fears.

Airbus’s debt load, although not critical, is significant. Debts exceed capital, but this is much better than that of its main competitor Boeing (XNYS: BA) — the American company cannot even boast of a positive equity!

Our bottom line: Airbus is definitely more of a fair company than a wonderful one.

Step 2. Understand the fair price of the company you have chosen and find out if it is undervalued.

So why invest in it? Maybe it’s very cheap? Airbus’s current price-to-earnings is almost 32. This is quite high for a long-cycle mature industrial company. However, Eyestock’s method of assessing its value is to compare the company relatively, not to the average market or peers, but to itself in a historical context.

Airbus’s median P/E over the last 20 valuation periods is 24.8. It is this value that we multiply by EPS (earnings per share) for the last 12 months to get the fair price and mark it on the chart with a yellow line.

It turns out that the company’s shares are now trading 23% above their fair historical valuation. Moreover, they are trading above the median estimate of the upper P/E range over the past 5 years. Therefore, AIR.PA stocks are greatly overvalued in our opinion.

A comment.

Despite the positive news environment and high expectations for production and sales of the flagship A-350, the analysis leads us to conclude that Airbus shares have an average quality score and are quite expensive. It can be suggested that their growth may not be due to the internal strength of the business, but rather to the weakness of its main competitor, Boeing even though Airbus Chief Financial Officer Thomas Toepfer denies it.

Unlike the Dutch company, Boeing Co has big problems with its trump card 737 MAX, practically does not recover from losses, and as we already wrote, has a negative shareholders equity, and its final Eyestock rating is -29%! What does it mean? This means that the business is demonstrating not just weak results, but results that are significantly below the most modest expectations.

We are confident there are more interesting opportunities among European equities. For example, we shared 6 undervalued stocks here and did thorough research on ASML and Novo Nordisk.
if you’re looking to invest in industrial stocks, check out our favorites Copart and ODFL.

Invest Wisely, Accelerate Growth