Investing.com -- JPMorgan has downgraded European airport stocks following a period of strong performance, signaling a shift in investor sentiment.
Aena (BME:AENA), which had previously been a top pick for JPMorgan, saw its stock downgraded to "neutral” rating from an "overweight” rating, while Aeroports de Paris (EPA:ADP) was upgraded to "overweight" status.
This reshuffling was driven by contrasting performances in their stock prices, with ADP’s shares falling by 5% year-to-date and Aena’s climbing by 22%.
The downgrade of Aena is due to the fact that its strong YTD performance has absorbed much of the upside potential. Aena’s stock surged by 70% since the end of 2022, outpacing both its peers and broader market trends.
As a result, the anticipated upside to its price target has narrowed, and the stock is now seen as fairly valued. Questions surrounding Aena’s future free cash flow in the next regulatory period, from 2027 to 2031, also contributed to investor caution.
The company has guided for a doubling of capital expenditures during this period, raising concerns about its ability to maintain its best-in-class FCF yield.
Conversely, ADP’s stock, which had faced political and economic headwinds in France, now presents a more favorable risk-reward profile.
The uncertainty surrounding potential tax increases in France, particularly fears over the corporation tax rate and the French airline ticket tax, had already been priced into ADP's shares, leaving room for upside if the political landscape stabilizes.
ADP’s shares are also positioned to benefit from a potential recovery in Chinese air traffic, which remains well below pre-COVID levels, and the market has yet to fully recognize the value of ADP’s stake in GMR, its Indian airport operator.
JPMorgan remains cautious on Fraport (ETR:FRAG), retaining a neutral rating. While the company has shown promise in terms of expected tariff increases, uncertainties around its traffic growth for 2025 and the regulatory approval of the tariff hikes leave some questions unanswered.
Fraport is still awaiting positive FCF, which had been expected in 2024 but has now been delayed to 2025.