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On Tuesday, Redburn-Atlantic revised its stance on Air France-KLM (AF:FP) (OTC: AFLYY (OTC:AFLYY)), upgrading the airline’s stock rating from Neutral to Buy and raising its price target to EUR15.00, up from the previous EUR9.50. The adjustment reflects the research firm’s recognition of the airline’s transformation and potential for improved financial performance. According to InvestingPro data, the stock has already shown strong momentum with a 22.4% gain year-to-date, while maintaining impressive gross profit margins of nearly 70%.
James Goodall of Redburn-Atlantic highlighted that Air France-KLM has evolved into a more streamlined and efficient operation. The challenges presented by the pandemic and other unique events had previously obscured the company’s progress. According to Goodall, the ongoing changes within the airline are anticipated to bolster cost management and enhance its ability to increase unit revenues, though InvestingPro analysis indicates the company still operates with a significant debt burden.
The analyst foresees a positive trajectory for Air France-KLM, with expanding margins and cash flow that should contribute to a beneficial shift in the company’s debt-to-equity ratio. Goodall’s outlook is also based on the airline’s current valuation, which he notes is trading at approximately 1.8 times its projected FY25 earnings per share, suggesting a potential investment opportunity. This aligns with InvestingPro’s Fair Value analysis, which suggests the stock is currently undervalued, trading at an attractive P/E ratio of 10.26. Subscribers to InvestingPro can access 8 additional key insights about Air France-KLM’s financial health and growth prospects.
The upgrade and new price target come at a time when Air France-KLM is focusing on its transition strategy, aiming to capitalize on its restructured business model. The airline is expected to continue its efforts in controlling costs while simultaneously working to maximize revenue per unit.
In conclusion, Redburn-Atlantic’s revised rating and price target for Air France-KLM shares reflect a more optimistic view of the airline’s financial prospects, underpinned by its ongoing transformation and strategic initiatives aimed at improving overall business performance.
In other recent news, Air France-KLM reported a strong performance in the fourth quarter of 2024, achieving an operating profit of €1.6 billion despite facing several challenges. These included a €160 million expense related to the Paris Olympics and operational issues at KLM, which contributed to difficulties in managing costs, excluding fuel. In response to these challenges, UBS downgraded Air France-KLM’s stock rating from Buy to Neutral, citing that the current stock valuation reflects these recent events. Meanwhile, Air France-KLM has proposed a €300 million acquisition for a 51% stake in the Spanish airline Air Europa, including assuming €475 million of Air Europa’s debt to the Spanish government. This comes amid reports that Lufthansa is also considering a bid for a minority stake in Air Europa. Additionally, Air France-KLM’s CEO expressed interest in TAP Portugal, contingent on favorable conditions and political discussions, although no talks have occurred yet with the European Commission. The company is also focusing on recovery and will consider dividends when financially viable. Lastly, the CEO noted high costs at Schiphol, which are expected to be passed on to customers.
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