Airbus SE (EPA:AIR): What The Forecasts Are Telling Us

As analysts expect Airbus SE (ENXTPA:AIR) to record solid earnings growth of 38.72% in the coming 12 months, it's important to take a step back and reflect on this encouraging sentiment. Investors should consider the forces that are driving this growth, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To help investors get a top level understanding, I will try to evaluate Airbus's margin behaviour so investors can evaluate the revenue and cost drivers behind future earnings projections and understand how they may impact on returns compared to the industry.

See our latest analysis for Airbus

What does AIR's profit margin tell us?

At a high level, a company’s ability to earn on their sales efforts can play an important role in determining shareholder value. Knowing the portion of top line revenue that is turned into net income helps to assess this ability whilst spotting profit drivers, and can be found by calculating AIR's profit margin.

There has been an expansion in Airbus's margin over the past five years, due to average net income growth of 10.11% surpassing 4.70% in average revenue growth, indicating that that the previous revenue growth has been acompanied by a growing portion translated in to earnings. The current 4.20% margin seems to continue this movement, which suggests that the increase in net income has likely occurred from a combination of enhanced cost efficiency as well as top line growth.

What does Airbus's margin expectation tell us about future earnings?

It is expected that margins will expand further, with 3.47% in expected annual revenue growth and annual net income growth forecasted at 16.51%. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. Nonetheless, those watching the stock must know margin expansion can hold various implications on the company's performance depending on how it operates, which makes further research very important.

Profit margins are commonly useful when employed as a comparitive measure to judge a business' profit-making ability against its industry. For Airbus in particular, future profit margin is expected to expand along with the Aerospace & Defense industry margins, and at the same time, AIR’s forecasted ROE of 25.91% exceeds that of the expected 15.24% ROE of the industry (note that this observation is also influenced by relative debt levels). This suggests that analysts expect Airbus's return per dollar of equity will exceed the industry due to the earnings attributes identified in our margin analysis. But before moving forward, it must be remembered that bottom line earnings and profit margins are susceptible to being manipulated and don't always give the full picture. Thus, it is essential to run your own analysis on Airbus's future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.

Next Steps:

For AIR, I've put together three relevant aspects you should look at:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Valuation: What is AIR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AIR is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of AIR? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.