Airbus: We Believe Investors May Be Overreacting to Lowered Guidance and Charge

Key Morningstar Metrics for Airbus

• Fair Value Estimate: $43.80
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

Airbus EADSY updated its guidance on June 24. The firm lowered its 2024 jet production goal from 800 to 775, shifted the time by which it expects to be able to produce 75 A320s per month from 2026 to 2027, and announced a EUR 900 million charge in its defense communications business. None of these changes significantly impact our fair value estimate—which had incorporated slightly more conservative assumptions than management’s previous guidance—and it remains at $43.80 per share.

The defense charge is hardly surprising, given that the company placed the unit under new management and strategic review at the end of 2023. The charge reflects updated assumptions for the costs to complete some long-lived space communications programs, which will be booked in the second quarter now that the change in assumptions is realized.

With Airbus shares trading down as much as 12% on June 25, we believe investors may be overreacting. Management placed some blame on both its supply of LEAP engines from CFM and GTF engines from Pratt & Whitney causing delays in final delivery. This represents an about-face from the firm’s first-quarter results call, when management reported that engines were no longer the bottleneck for jet production. Still, we don’t see the fluctuation as material; it falls within the scope of our Medium Uncertainty Rating for the company.

Finally, management commented on its relationship with Spirit AeroSystems, which supplies parts of the A220 and A350 and is in talks to be acquired by Boeing BA. We remain confident a deal will come together and Airbus will end up in control of the portions of Spirit that constitute its erstwhile supply chain on neutral or favorable terms.