Expanding Asia-Pacific Demand And LEAP Electrification Will Transform Aviation

Key Takeaways

• Leadership in next-gen aviation technologies, strong aftermarket demand, and defense growth enhance recurring revenues, margin resilience, and long-term competitiveness.
  
• Disciplined capital allocation and strong cash flows enable impactful acquisitions and shareholder returns, supporting sustained outperformance and market revaluation.
  
• Heavy dependence on key engine platforms, slow sustainability transition, supply chain fragility, shifting travel trends, and rising competition threaten Safran's future revenue growth and margins.

Catalysts

Engages in the aerospace and defense businesses in France, rest of Europe, the Americas, the Asia-Pacific, Africa, and the Middle East.

• Analyst consensus expects material cost and revenue synergies from the Collins acquisition, but with Safran's faster-than-expected integration pace and the global shift toward mission-critical systems, this could catalyze not just double-digit EBIT margins but also sustainable high-teens margin performance, exceeding medium-term guidance and accelerating EPS growth.
  
• While analysts broadly agree that robust defense spending will fuel future revenue growth, Safran's intentional capacity doubling and next-gen product launches in defense electronics-combined with multiple secured new contracts-could enable the company to surpass defense revenue targets, structurally increasing group-wide revenue visibility and margin resilience through 2030.
  
• Accelerating global air travel demand-especially from underpenetrated, high-growth Asia-Pacific and emerging markets-combined with record-low fleet retirements, is set to drive an extended aftermarket replacement cycle for CFM56 and LEAP engines, unlocking higher-than-anticipated recurring service revenues and supporting multi-year upside surprise in cash generation.
  
• Safran's leadership in electrification, AI-enabled avionics, and digitalized, predictive MRO-underscored by its rapid rollout of new electric propulsion and resilient navigation solutions-positions it to capture premium share of next-gen aviation value pools, driving step changes in margin mix and creating entirely new high-margin revenue streams not fully baked into market forecasts.
  
• The company's disciplined capital allocation, record free cash flow, and robust net cash position-combined with accelerating share repurchases-provide ample firepower for further high-impact M&A and shareholder returns, setting the stage for sustained outperformance in ROIC and supporting a multi-year rerating of the equity.

Safran Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Safran compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Safran's revenue will grow by 12.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 14.7% today to 12.3% in 3 years time.
• The bullish analysts expect earnings to reach €5.2 billion (and earnings per share of €13.88) by about August 2028, up from €4.3 billion 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 34.3x on those 2028 earnings, up from 28.2x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 34.5x.
• Analysts expect the number of shares outstanding to decline by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

Safran Future Earnings Per Share Growth

Risks

• Safran's heavy reliance on its LEAP engine program and the CFM56 aftermarket exposes the company to concentration risk; any technical issues, accelerated retirement, or a slowdown in demand for these platforms could significantly reduce revenue predictability and earnings stability over time.
  
• The pace of Safran's transition toward electrification and sustainable aviation technology appears modest despite announced partnerships; failure to accelerate these efforts as environmental regulations and carbon taxes tighten may erode Safran's market share as airlines prioritize greener propulsion solutions, putting long-term margins and revenue growth at risk.
  
• The global aerospace supply chain remains complex and vulnerable, as evidenced by recurring production backlogs and strike-related delivery delays within the LEAP engine supply chain; persistent or worsening disruptions could inflate input costs and delay customer deliveries, negatively impacting both top-line revenue and operating margin.
  
• Demographic changes, evolving consumer travel habits, and the rise of virtual alternatives to business travel create secular uncertainty around long-term air travel growth; a sustained cap or decline in commercial aviation demand would constrain Safran's addressable market, limiting revenue expansion and pressuring future earnings.
  
• Intensifying competition from established engine makers and potential new entrants, along with possible consolidation among aircraft manufacturers, could shift bargaining power away from Safran, increasing pricing pressure and contract risk, ultimately hurting revenue growth and compressing margins in the long run.

Valuation

• The assumed bullish price target for Safran is €350.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Safran'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 €350.0, and the most bearish reporting a price target of just €219.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €42.2 billion, earnings will come to €5.2 billion, and it would be trading on a PE ratio of 34.3x, assuming you use a discount rate of 7.0%.
• Given the current share price of €291.2, the bullish analyst price target of €350.0 is 16.8% 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.