CFRA adjusted its outlook on MTU Aero Engines (MTX:GR) (OTC: OTC:MTUAY), increasing the price target to EUR345.00 from the previous EUR275.00 while maintaining a Buy rating on the stock. The firm's analyst cited the company's enhanced earnings forecast for 2024 as a key factor for the revision. MTU Aero Engines has recently updated its adjusted EBIT expectations to just over EUR1.0 billion, an increase from the prior range of EUR0.95 billion to EUR0.98 billion.
The revised price target is based on a P/E multiple of 22.6x the projected 2025 earnings per share (EPS). The analyst's valuation reflects a premium of a 0.5 standard deviation above MTU Aero Engines' 10-year average valuation. The company's preliminary financial results for the first nine months of 2024 included an adjusted revenue of EUR5.29 billion and adjusted EBIT of EUR744 million. Notably, the implied Q3 2024 adjusted EBIT of EUR274 million surpassed the consensus estimate of EUR238 million.
The strong Q3 performance is attributed to the robust demand in the commercial Maintenance, Repair, and Overhaul (MRO) business. In response to the company's improved financial outlook, CFRA has raised its 2024 EPS estimate for MTU Aero Engines to EUR14.23 from EUR13.90 and the 2025 EPS forecast to EUR15.26 from EUR15.08.
The analyst remains optimistic about MTU Aero Engines' stock, anticipating earnings growth driven by both the Original Equipment Manufacturer (OEM) and commercial MRO segments. This growth is expected to stem from the global recovery of the aviation sector. Despite concerns around Pratt & Whitney's PW1100G-JM engine issues, the firm believes that the positive momentum in MTU Aero Engines' business will more than compensate for any negative impacts.
In other recent news, MTU Aero Engines AG received a downgrade from Citi, shifting the stock's status from 'Neutral' to 'Sell'. This decision came after a comprehensive analysis of the company's discounted cash flow (DCF) and an anticipated improvement in cash conversion beyond the forecast period. Citi's analysis indicates that MTU Aero Engines is the first among commercial aerospace stocks to fully recover from the Covid-19 impacts, expecting a normalized profit growth of about 8% compound annual growth rate (CAGR) from 2024 to 2029.
The downgrade reflects Citi's view that MTU Aero Engines should command a lower enterprise value to earnings before interest and taxes (EV/EBIT) multiple compared to its peers, due to the lower expected cash conversion rates for MTU.
InvestingPro Insights
Recent data from InvestingPro adds further context to MTU Aero Engines' (OTC: MTUAY) financial performance and market position. The company's market capitalization stands at $17.97 billion, reflecting its significant presence in the aerospace industry. Despite the challenges faced, InvestingPro Tips highlight that MTU Aero Engines has maintained dividend payments for 19 consecutive years, demonstrating a commitment to shareholder returns even in turbulent times.
The company's stock has shown remarkable strength, with InvestingPro data revealing a 87.4% price total return over the past year and a 47.58% return over the last six months. This aligns with the analyst's optimistic outlook and the raised price target. Additionally, an InvestingPro Tip notes that analysts anticipate sales growth in the current year, supporting the positive earnings forecast mentioned in the article.
While the company's P/E ratio is currently negative at -229.18, InvestingPro Tips suggest that analysts predict the company will be profitable this year. This expectation of a turnaround correlates with the CFRA analyst's increased EPS estimates for 2024 and 2025.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for MTU Aero Engines, providing a deeper understanding of the company's financial health and market position.
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