On Thursday, Safran SA (EPA:SAF:FP) (OTC: SAFRF) received an upgrade in its stock rating by a Citi analyst from Neutral to Buy, accompanied by an increase in the price target to €230 from the previous €211. The adjustment comes despite recent market movements influenced by the French election announcement and a change in guidance from Airbus.
The analyst from Citi highlighted that Safran's shares have experienced some volatility due to these events but maintained a positive outlook for the company's mid-term future. The belief is that the presence of legacy engines in service for an extended period will be beneficial for Safran, aiding a smooth transition to new engine types. The fundamental profit drivers for the company, according to the analyst, remain unchanged.
Air traffic demand continues to be robust, and Safran's engines are reportedly being utilized more than those of any other engine peer. Additionally, the demand for Maintenance, Repair, and Overhaul (MRO) services is described as exceptionally strong. These factors contribute to the analyst's view that Safran is well-positioned in the market.
The note from Citi also pointed out that Safran's market capitalization has decreased by €9 billion from its peak. This decline is seen as an opportunity for investors to buy into a high-quality stock at an attractive price point. The analyst's comments suggest confidence in Safran's ability to navigate through the current market challenges and capitalize on the ongoing high demand for air travel and engine services.
In other recent news, Safran SA experienced a robust first quarter in 2024, with an 18% increase in revenue year-over-year, or a 19% organic growth. The Equipment & Defense division particularly stood out with a 24% growth in revenue compared to the previous year. These recent developments led CFRA to maintain its Hold rating on Safran, while raising the price target from EUR184.00 to EUR220.00.
The new stock target is based on a P/E multiple of 32 times the expected 2025 earnings per share (EPS). CFRA has also adjusted its earnings projections for Safran, expecting the company's 2024 EPS to be EUR6.25, up from the previous estimate of EUR5.75, and the 2025 EPS forecast increased to EUR6.87 from EUR6.34.
Despite the positive earnings outlook, CFRA believes that the market has already factored in these prospects. Safran has confirmed its financial targets for 2024, aiming to reach approximately EUR27.4 billion in adjusted revenue and EUR4.0 billion in recurring operating income.
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