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On Tuesday, Citi analysts adjusted their stance on Safran SA (OTC:SAFRY) (SAF:FP) (OTC:SAFRF), downgrading the stock from Buy to Neutral despite increasing the price target to EUR275.00, up from a previous EUR260.00. The revision was based on the belief that the current share price accurately reflects the aerospace company’s prospects for profitable growth.
The new price target set by Citi is rooted in a discounted cash flow model, which anticipates a five-year operating profit growth of around 11% and a medium-term growth rate of 8%. Additionally, the model predicts a long-term cash conversion rate equal to 100% of operating profit and incorporates a weighted average cost of capital (WACC) of 9%.
Citi’s near-term sales and operating profit estimates for Safran (EPA:SAF) are modestly above the consensus, with projections exceeding the average by 3-5%. However, their forecast for the company’s operating profit in 2030 is slightly less optimistic than the current consensus.
The rationale behind the downgrade, as explained by Citi, is that Safran’s valuation multiples are currently at the higher end when compared to its industry peers. Despite this, the firm acknowledges that Safran’s strong market position and its effective cash conversion processes warrant a premium in valuation.
Safran, known for its work in the aerospace sector, has been under scrutiny by investors as they evaluate the company’s financial health and growth trajectory. With the latest assessment from Citi, market watchers now have a revised outlook on the company’s stock performance and future potential.
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