On Monday, CFRA, a financial research firm, adjusted its price target for Deutsche Lufthansa AG (LHA:GR) (OTC: OTC:DLAKY), reducing it to EUR7.00 from the previous EUR7.50. The firm has retained a Hold rating on the stock.
The revision of the price target is based on a 2024 P/E multiple of 5.4x, reflecting Deutsche Lufthansa (ETR:LHAG)'s average P/E ratio from April 2015 to March 2020, before the pandemic. CFRA's analysis indicates that the aviation sector is facing challenges, including disruptions to flights to and from the Middle East for several European airlines, such as Air France, due to cancellations and rerouting to avoid the airspace of certain countries.
Additionally, the cost of jet fuel has seen a significant increase, rising more than 10% in the last three months. This surge has prompted CFRA to revise its earnings per share (EPS) forecast for Deutsche Lufthansa for the year 2024 to EUR1.32 from EUR1.41 and for 2025 to EUR1.46 from EUR1.49.
While CFRA maintains a Hold opinion on Deutsche Lufthansa shares, the firm acknowledges the ongoing recovery of the aviation sector. However, it also notes the rise in competition, as evidenced by a decrease in the load factor for the fourth quarter of 2023, which fell by 0.7 percentage points year-over-year to 81.3%.
The report also mentions that staffing shortages and the higher cost of jet fuel are likely to increase operating expenses for airlines, which could impact their profit margins. Despite these challenges, CFRA expresses a generally positive outlook on the aviation sector's recovery.
InvestingPro Insights
In light of CFRA's recent price target adjustment for Deutsche Lufthansa AG, it's worth considering additional metrics and insights from InvestingPro. The company is currently trading at a low earnings multiple with an adjusted P/E ratio of 4.38 for the last twelve months as of Q4 2023, suggesting that the stock may be undervalued relative to its earnings. This aligns with CFRA's use of historical P/E ratios to set their price target.
Deutsche Lufthansa's status as a prominent player in the Passenger Airlines industry is reinforced by its significant revenue growth, reporting a 14.67% increase in the last twelve months as of Q4 2023. Moreover, the company's gross profit margin stands at 20.94%, which is a critical factor in its ability to manage operating costs, including the rising jet fuel prices mentioned by CFRA.
InvestingPro Tips also highlight that Lufthansa is trading near its 52-week low, which could present an opportunity for investors considering entry points. Additionally, analysts predict the company will be profitable this year, a sentiment that echoes CFRA's positive outlook on the aviation sector's recovery. For those interested in deeper analysis, there are 9 additional InvestingPro Tips available on Deutsche Lufthansa, which can be explored with an exclusive offer using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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