Terminal Upgrades In Frankfurt And Lima Will Expand Global Connectivity

Key Takeaways

• Successful global expansion and modernization projects are set to drive stronger revenue growth and improve operating margins beyond current expectations.
  
• Diversification, increased passenger spending, and digital initiatives strengthen earnings resilience and position the company for long-term profit growth.
  
• High costs, concentrated risk at a lagging main hub, leverage constraints, forex exposure, and structural industry shifts all pressure profitability and limit future financial flexibility.

Catalysts

Owns and operates airports in Germany, rest of Europe, Asia, and the United States.

• Analyst consensus highlights the positive completion of expansion projects such as Terminal 3 in Frankfurt and the new terminal in Lima, but underestimates their potential; with both on track and receiving strong early demand and positive customer feedback, these assets should catalyze stronger-than-expected revenue growth and greater non-aeronautical income, driving higher-than-modeled EBITDA and accelerating margin expansion as CapEx abates.
  
• While consensus expects retail revenue uplift from infrastructure upgrades to be moderate, strong initial results-such as a 25 percent boost in per-passenger retail revenue at Lima-signal higher spending per passenger group-wide as modernization and digital offerings roll out, providing substantial upside to both revenue and profit margin forecasts.
  
• Fraport's international airport portfolio continues to outperform, with air travel growth outpacing expectations in emerging markets like Brazil and Greece; this global diversification shields cash flow from local German risks and promotes resilient, stable earnings growth as air travel demand increases worldwide.
  
• The company is well-positioned to benefit from secular increases in global passenger traffic due to a rising middle class, urbanization, and international mobility, which should structurally lift baseline revenue and operating cash flow in the long term, particularly as capacity constraints ease.
  
• Fraport's ongoing digitalization and automation initiatives-including streamlined passenger flow, enhanced retail analytics, and self-service options-are expected to drive sustained cost optimizations, improved operational leverage, and higher earnings margins across multiple segments.

Fraport Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Fraport compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Fraport's revenue will grow by 4.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.9% today to 10.5% in 3 years time.
• The bullish analysts expect earnings to reach €533.3 million (and earnings per share of €5.78) by about August 2028, up from €395.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.2x on those 2028 earnings, up from 17.5x today. This future PE is greater than the current PE for the GB Infrastructure industry at 13.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.21%, as per the Simply Wall St company report.

Fraport Future Earnings Per Share Growth

Risks

• Rising costs linked to the completion and operation of new terminals, visible in higher depreciation and increased interest expenses, will likely weigh on net margins and earnings for several years even if revenue grows moderately.
  
• The company's heavy reliance on Frankfurt Airport, which is still lagging behind pre-pandemic recovery rates unlike other group airports, exposes total revenue and profits to outsized risk from local disruptions or longer-term secular travel declines.
  
• Persistent high leverage, with net financial debt of 8.5 billion euros and a leverage ratio of 6.6, means earnings remain sensitive to interest rate increases and limits the company's financial flexibility to face industry downturns or invest in new opportunities.
  
• Adverse foreign exchange movements, such as those impacting Antalya Airport's results and causing non-cash losses of tens of millions of euros, pose a recurring risk to financial results due to Fraport's international portfolio and exposure to emerging markets.
  
• Structural trends like the potential for long-term reductions in business travel from remote working, mounting regulatory requirements for decarbonization, and the spread of alternative transport options in Europe all threaten to cap passenger growth, depress revenues, and limit future cash flow expansion.

Valuation

• The assumed bullish price target for Fraport is €90.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Fraport's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €90.0, and the most bearish reporting a price target of just €50.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €5.1 billion, earnings will come to €533.3 million, and it would be trading on a PE ratio of 20.2x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of €74.8, the bullish analyst price target of €90.0 is 16.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.