Vega C And Ariane 6 Will Drive Expanding Satellite Demand

Key Takeaways

• Accelerated launch cadence, strong order backlog, and new product introductions are driving higher revenue growth and margin expansion beyond analyst expectations.
  
• Expansion into U.S. defense and benefiting from European strategic priorities diversify revenue and secure multi-year public funding for long-term growth.
  
• Heavy dependence on key programs and government spending, plus rising competition and investment needs, heighten Avio's exposure to market risk and margin pressure.

Catalysts

Through its subsidiaries, designs, develops, produces, and integrates space launchers in Italy and internationally.

• Analyst consensus sees the success of the latest Vega C and Ariane 6 flights as restoring customer confidence and launch cadence, but this likely understates the step-change in launch tempo and order visibility, given Avio's demonstrated ability in 2025 to achieve over four high-profile launches a year and a record order backlog now at four times annual revenues. This accelerates both near-term revenue growth and longer-term earnings power through increased scale.
  
• Analysts broadly note the introduction of the P160 booster and ramp-up in P120 production as margin tailwinds, but are likely underestimating the rapid volume-driven operating leverage from moving toward 30-35 units a year by 2027 and the fact that incremental CapEx is already embedded, positioning Avio for EBITDA and net margin expansion well above consensus forecasts.
  
• The 20 percent compound annual growth in backlog, combined with explosive demand for launch services-including mega-constellation initiatives like Amazon's Kuiper-places Avio in a prime position to capture the surge in global satellite deployments for communications and Earth observation, supporting sustained multi-year revenue compounding.
  
• Avio's imminent expansion into U.S. defense propulsion manufacturing and its highly strategic, tariff-insulated "in-country for country" model in the U.S. unlock a much larger and less cyclical addressable market, which can rapidly diversify and scale revenues, while reducing risk to European contract delays or policy.
  
• Intensifying moves for European technological sovereignty and national security spending-combined with ongoing ESA and state support for indigenous launch capacity-ensure highly visible, multi-year public funding streams and a structural boost to backlog, margin stability, and long-term earnings growth.

Avio Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Avio compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Avio's revenue will grow by 11.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.3% today to 5.0% in 3 years time.
• The bullish analysts expect earnings to reach €33.0 million (and earnings per share of €1.32) by about August 2028, up from €6.1 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 33.3x on those 2028 earnings, down from 130.6x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 40.6x.
• 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 9.71%, as per the Simply Wall St company report.

Avio Future Earnings Per Share Growth

Risks

• Avio's strong reliance on Vega and Ariane 6 programs creates significant revenue concentration risk, as any delays, cost overruns, or loss of technical competitiveness in these platforms could substantially impact both future revenue growth and profit margins.
  
• Despite recent order backlog growth, about half of new orders and a majority of current revenues depend on governmental and defense spending, rendering Avio vulnerable to any long-term decline in public sentiment, fiscal tightening, or political shifts that could reduce funding for space and defense launches, thus diminishing revenue predictability.
  
• The rapid rise of commercial competitors such as SpaceX and increased adoption of reusable launch technologies could structurally erode Avio's market share, intensify pricing pressure, and undercut demand for expendable launch vehicles, threatening top-line revenue and compressing net margins.
  
• Production ramp-up targets for P120/P160 motors are constrained by existing inventory, supply chain complexities, and the pace at which Ariane 6 and Vega missions consume components, risking underutilization of manufacturing capacity and lower-than-expected profitability if industry-wide launch demand softens.
  
• Sustained pressure to invest in new propulsion and greenfield manufacturing initiatives, notably the multi-year US plant buildout with uncertain timing of customer commitments and funding, could drive up R&D and capital expenditures while delaying earnings contributions, raising the risk of prolonged margin compression and negative cash flow impacts.

Valuation

• The assumed bullish price target for Avio is €32.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Avio'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 €32.0, and the most bearish reporting a price target of just €20.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €656.6 million, earnings will come to €33.0 million, and it would be trading on a PE ratio of 33.3x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of €30.5, the bullish analyst price target of €32.0 is 4.7% 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.