Airbus [AIR] started of the new year with a strong rise in aircraft deliveries year-on-year, with an estimated 32 planes delivered in January 2024.
The ramp-up was primarily driven by 27 new A320/321 aircraft – 13 deliveries more than in January 2023, when output had been depressed by supply bottlenecks. But supplies of engines and other aircraft components remain comparatively tight.
Airbus' previous volume high was 864 planes delivered in 2019, so it will be interesting to see if they guide a number for 2024 close to or above that, says Morningstar equity analyst Nicolas Owens.
"I think the market is expecting something higher", he says. The company, which has a Morningstar Wide Moat Rating issued guidance for 720 aircrafts in 2023.
Owens says he will also watch for any efforts to increase supply chain growth so it can build A320s faster when the company releases results on Thursday. Most importantly, the outlook for 2024 A320 production rates will be key.
"I am actually expecting [it] might 'disappoint' here and give a lower target than previously expected, possibly taking advantage of Boeing's slowdown to also de-stress [its] supply chain", Owens adds.
Will Boeing's Woes Hit Airbus Stock Too?
The fatal crashes of two Boeing 737 MAX 8 aircraft in 2018 and 2019 had serious consequences for competitor Boeing (BA), and led to the grounding of the entire 737 MAX fleet by global aviation regulators for nearly two years.
To this day, Boeing is working out flaws in its manufacturing processes for new 737 and 787 jets. On January 6, the US Federal Aviation Administration announced 171 Boeing MAX 9s must be inspected before they can fly again.
"I don't expect Airbus to comment on Boeing directly – rather I expect they will say they support safety in the product and they might also get a question or two about their manufacturing processes," Owens says.
Owens estimates Airbus' fair value is €160 (£136.22). This is roughly 23 times its 2023 earnings estimate. Its enterprise value is roughly 12 times Morningstar's 2023 estimates for earnings before tax interest depreciation and amortisation (EBITDA).
The primary driver of valuation is the ramp up of margin-accretive narrow-body aircraft after the pandemic. "Overall, we expect operating margins, which are roughly equivalent to Airbus' EBIT adjusted metric, to improve to about 12.5% at midcycle versus a disappointing 8.5% in 2022", Owens says.
The stock is currently trading in Morningstar 3-Star territory.
Key Morningstar Metrics for Airbus Stock
• Fair Value Estimate: €160;
• Current price: €149.98;
• Morningstar Rating: ★★★;
• Morningstar Economic Moat Rating: Wide;
• Morningstar Uncertainty Rating: Medium.
Airbus Stock: Who is Bullish and Who is Bearish?
Investment bank and broker Stifel expects adjusted EBIT for the fourth quarter 2023 at €2.1 billion, versus a Bloomberg consensus estimate of €2.2 billion
The estimate implies Airbus will slightly miss its fiscal year adjusted EBIT guidance of €6 billion by roughly 3%. But free cash flow will exceed guidance due to the strong order intake in fiscal year 2023.
"Airbus was able to secure a record 2,094 orders that came with sizeable downpayment", the analysts say. For 2024, Stifel expects the company to guide for about 800 deliveries and an adjusted EBIT of €7 billion, in line with consensus estimates.
Analysts at BofA Global Research also see Airbus in a good shape.
2024 should begin a period of mid-term margin expansion driven by better revenue mix on the A320 family (skewed towards the A321), the A350 becoming a significant profit contributor and hiring slowing from 2024 onwards, they say. They believe the company will guide for more than 800 deliveries in 2024.
Analysts at UBS are more sceptical, however, and say they don't expect any meaningful operating leverage to be visible in the fourth quarter given recruitment costs.
In addition, peers continue to cite inflation as a key headwind. The analysts put commercial EBIT at €1.7 billion, 2.4% behind consensus, and €2.3 billion at group level, slightly above consensus.
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