One analyst has identified a new risk for Airbus shares: Inflation.
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Wall Street believes in the recovery in commercial aerospace, and shares of
Boeing
have been growing in popularity with analysts. There are still risks to the stock and the sector, however, as a downgrade of
Boeing
‘s competitor illustrates.
On Tuesday, Berenberg analyst Philip Buller downgraded shares of
Airbus
(ticker: EADSY) to Sell from Hold. He lowered his price target to about $110 a share from about $132 a share. (Buller’s share price target is in euros.)
Essentially, Buller believes that inflation could bite into
Airbus
‘s profit margins in coming years.
That isn’t what his peers expect. Consensus Wall Street estimates show operating profit margins expanding by about 2 percentage points, to about 11% from 9%, over the coming two years.
Flat or declining profit margins would be a surprise. Airbus didn’t immediately respond to a request for comment about the risk of inflation and plans to offset any cost headwinds.
Rising production is one way to offset costs. That generates more sales over the same number of plants and fixed costs. Wall Street expects Airbus to deliver about 760 planes in 2023, up from 671 delivered in 2022. Before the pandemic, in 2019, Airbus delivered 863 jets.
Airbus shares are down 2.2% in overseas trading. Boeing stock is up 0.5% in early Tuesday trading in the U.S. The S&P 500 and
Dow Jones Industrial Average
are close to break even.
What is a risk for Airbus, of course, is a risk for Boeing. The two function as a duopoly in the market for large jets. If Airbus could have an inflation problem, investors should ask themselves if inflation is also growing risk for Boeing.
Rising costs might be a concern, but the setup is a little different for Boeing. The company’s deliveries have been depressed not only by Covid, but also by problems with its MAX 737 and 787 jets. Boeing delivered 480 jets in 2022. Wall Street expects about 650 jets delivered in 2023. Before the pandemic’s onset—and before the 737 MAX was grounded worldwide in 2019—Boeing delivered 806 jets in 2018.
Boeing has room for more improvement in deliveries to offset any cost increases. In 2022, it reported an operating margin of negative 5% and an operating loss of about $3.5 billion. Wall Street expects operating profit margins of about 8% by 2024.
About 76% of analysts covering Airbus stock rate shares Buy. The average Buy-rating ratio for stocks in the
S&P 500
is about 58%. The average Sell-rating ratio for an S&P stock is less than 10%. Just less than 10% of analysts covering Airbus stock rate shares Sell.
As for Boeing, about 65% of analysts covering it rate the stock Buy. Boeing has been getting more popular with the Street. The Buy-rating ratio for Boeing stock bottomed out at about 39% in late 2020.
One analyst out of 26, representing about 4%, rates Boeing shares Sell.
Coming into Tuesday trading, Boeing stock is up about 27% over the past three months. Airbus shares have been roughly flat over that span.
Write to Al Root at allen.root@dowjones.com
Credit: marketwatch.com