SAF: Aftermarket Momentum And Macro Risks Will Guide Earnings Through 2025

Key Takeaways

• Rising global air travel and defense spending, paired with strategic acquisitions, are boosting Safran's growth, diversifying revenue, and increasing earnings stability.
  
• Leadership in sustainable propulsion technologies is enhancing Safran's market share, pricing power, and margin resilience amid tightening environmental regulations.
  
• High exposure to supply chain, integration, and customer risks could undermine Safran's revenue growth, margins, and profitability amid industry changes and global uncertainties.

Catalysts

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

• The company is experiencing strong momentum in global air travel, particularly narrowbody engine demand (e.g., from Ryanair's LEAP-1B order and increased shop visits), supported by the sustained expansion of middle-class travelers in emerging markets. This underpins recurring aftermarket revenue growth and supports a higher long-term revenue base.
  
• Safran's ongoing investment and leadership in fuel-efficient, lower-emission propulsion (hybrid-electric, sustainable aviation technologies) are already translating into new commercial and R&D partnerships, positioning the firm to capture incremental market share and secure pricing power as environmental regulation and ESG criteria gain importance. This trend is expected to support margin expansion and topline resilience.
  
• The recent acquisition of Collins' actuation and flight control assets, along with other targeted acquisitions and strategic partnerships, will broaden Safran's mission-critical offering, drive cost synergies through 2028, and further diversify revenue streams, likely resulting in higher EBIT margins and more stable earnings.
  
• Accelerating defense spending in Europe (e.g., NATO member budget increases and strong Rafale export contracts) and Safran's doubling of production capacity for navigation systems and missile engines are expected to drive long-term growth in the defense segment, supporting higher revenues and reduced exposure to civil aerospace cycles.
  
• Record free cash flow generation and improved operating margins (17% in H1, with full-year propulsion margin expansion targeted at 250 bps) indicate operational efficiency improvements and scalability, pointing toward robust earnings and cash flow growth as these long-term demand and technology trends play out.

Safran Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Safran's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 13.3% in 3 years time.
• Analysts expect earnings to reach €6.0 billion (and earnings per share of €14.51) by about July 2029, up from €3.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €6.8 billion in earnings, and the most bearish expecting €4.7 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 30.5x on those 2029 earnings, down from 36.3x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 32.5x.
• Analysts expect the number of shares outstanding to decline by 1.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.26%, as per the Simply Wall St company report.

Risks

• Exposure to supply chain risks-including labor strikes and component shortages-remains high in Safran's engine production operations (e.g., LEAP engines), which could create delivery bottlenecks, limit output capacity, and negatively impact both revenue growth and margins if not fully resolved.
  
• Increasing CapEx and heavy R&D spending (e.g., hybrid-electric propulsion, battery systems, new engine variants) combined with recent large acquisitions (Collins actuation & flight controls, CRT engine repair, Orolia) entail integration and execution risks, potentially leading to cost overruns or dilution of net margins and earnings if synergies are delayed or missed.
  
• Customer concentration, especially reliance on major airframers (Airbus, Boeing) and a few large airline clients (e.g., Ryanair, ANA), can expose Safran to revenue volatility and unfavorable contract terms if demand, relationships, or industry cycles shift, impacting recurring revenues and cash flows.
  
• Civil aftermarket performance is currently buoyed by historically low retirement rates in the CFM56 fleet and strong demand, but any reversal in long-term airline fleet renewal rates, rising aircraft retirements, or technological disruption (e.g., next-gen engines, alternative propulsion from competitors) would erode high-margin aftermarket revenues and compress group profitability.
  
• Ongoing global uncertainties-including a rapidly changing FX environment, risk of new tariffs or trade barriers, and potential changes in defense spending priorities (outside Europe/NATO)-represent external risks that could increase input costs, disrupt international business operations, and pressure both topline and net earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €368.29 for Safran 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 €432.0, and the most bearish reporting a price target of just €257.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €44.9 billion, earnings will come to €6.0 billion, and it would be trading on a PE ratio of 30.5x, assuming you use a discount rate of 7.3%.
• Given the current share price of €339.8, the analyst price target of €368.29 is 7.7% 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.