Future Partnerships With Thales And Leonardo Will Transform Defence And Space Division

Key Takeaways

• Strategic partnerships and technical reviews in Defence and Space aim to enhance operational efficiency, potentially boosting future revenue and margins.
  
• Increased production capacity and new aircraft programs in Commercial Aircraft sector target higher revenue, leveraging new opportunities and order backlog.
  
• Supply chain challenges and integration risks could constrain Airbus' operational efficiency and revenue growth, while global trade uncertainties may hinder future profitability.

Catalysts

Engages in the design, manufacture, and delivery of aeronautics and aerospace products, services, and solutions worldwide.

• Airbus is focusing on a significant transformation of its Defence and Space division, which includes extensive technical reviews and strategic options, potentially involving partnerships with Thales and Leonardo. This could improve operational efficiency and lead to better revenue and margins in the future.
  
• Airbus is ramping up production in its Commercial Aircraft sector, including new opportunities from the A321XLR deliveries. Increasing output to 820 aircraft in 2025 and addressing supply chain challenges could drive higher revenue and improved earnings.
  
• The company is integrating Spirit AeroSystems work packages to secure production and future ramp-up for the A350 and A220 programs. By investing in production capabilities and addressing operational challenges, Airbus aims for improved medium-term earnings and cash flow.
  
• Airbus is leveraging its strong order intake across helicopter and space businesses, reflecting increased demand and a robust commercial environment. The backlog supports future revenue growth and potential margin expansion due to economies of scale.
  
• Airbus plans to sustainably decarbonize aviation, including launching a commercially viable hydrogen-powered aircraft. These efforts could lead to long-term revenue growth and margin improvement by differentiating the company's products in the evolving aerospace market.

Airbus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Airbus's revenue will grow by 11.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.1% today to 8.1% in 3 years time.
• Analysts expect earnings to reach €7.7 billion (and earnings per share of €9.82) by about March 2028, up from €4.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €8.7 billion in earnings, and the most bearish expecting €6.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.0x on those 2028 earnings, down from 31.9x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 29.3x.
• Analysts expect the number of shares outstanding to decline by 0.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.38%, as per the Simply Wall St company report.

Airbus Future Earnings Per Share Growth

Risks

• The integration of Spirit AeroSystems, a key supplier for Airbus, poses risks including required capital investment to improve operations and efficiency, potentially impacting Airbus' future free cash flow and increasing operational costs.
  
• Supply chain disruptions, particularly with Spirit AeroSystems and engine suppliers such as CFM, may delay aircraft deliveries, affecting revenue streams and operational efficiency.
  
• Space program challenges, reflected in significant charges and ongoing risks, may continue to impact Airbus’ net margins and overall earnings if not properly addressed and transformed.
  
• The global trade environment, including potential new tariffs from the U.S., adds uncertainty around future revenue and profitability, especially since Airbus has excluded such impacts from its 2025 guidance.
  
• The ramp-up plans for key aircraft models like the A350 and A220 face pressures due to current supply chain issues, limiting Airbus' ability to meet delivery targets, which could impact its revenue growth trajectory.

Valuation

• The analysts have a consensus price target of €185.15 for Airbus based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €238.0, and the most bearish reporting a price target of just €109.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €94.8 billion, earnings will come to €7.7 billion, and it would be trading on a PE ratio of 22.0x, assuming you use a discount rate of 5.4%.
• Given the current share price of €171.3, the analyst price target of €185.15 is 7.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.