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Investing.com -- Aerospace stocks have enjoyed a strong run this year, but a new Bernstein report suggests that while the sector’s fundamentals remain robust, the pace of earnings upgrades is likely to slow.
According to the firm, the aftermarket business has been the key driver of performance in 2025, with sales growth averaging over 20% in the second quarter.
Demand for spare parts and servicing remains high as airlines extend the life of existing fleets amid limited availability of new aircraft.
Bernstein said there are no signs of slowing traffic or weakening airline profitability, both of which are critical indicators for the aftermarket environment.
With Boeing (NYSE:BA) still recovering from its 737 crisis and Airbus gradually increasing production, the shortage of new planes is expected to persist, further supporting aftermarket demand.
Safran (EPA:SAF), Rolls-Royce (OTC:RYCEY) and MTU Aero Engines (OTC:MTUAY) have all benefited, though with differing outlooks. Safran posted strong results in the first half, driven by its propulsion business, and Bernstein expects another beat, placing its 2025 EBIT estimate 6% above consensus.
However, the analysts noted that high valuations mean any upside reaction could be muted until the company updates its medium-term targets later this year or early 2026.
Rolls-Royce continues to outperform after a sharp turnaround. Its civil aerospace and power systems divisions delivered profit growth of more than 50% in the first half, prompting the company to raise its 2025 guidance.
Bernstein said it expects another upgrade to medium-term targets in 2026, though it also noted that the stock is trading at a 25% premium to Safran, which the analysts called “hard to justify”.
MTU has lagged behind peers due to problems with Pratt & Whitney’s geared turbofan engine, which led to the grounding of more than 600 planes and hundreds of millions of euros in compensation payments.
While groundings have stabilized and are expected to decline in 2026, Bernstein said investor caution remains high.
The brokerage maintains an “outperform” rating on MTU, expecting a re-rating once the technical issues ease.
Bernstein also flagged that the strong aftermarket trend is well known and already reflected in share prices.
Most companies in the sector have already raised their 2025 targets, meaning earnings revisions are likely to continue but at a slower pace.
Beyond 2025, the analysts warned that growth will be constrained by tough year-on-year comparisons and a potential reversal of temporary positive drivers, such as the elevated level of spare engines in the market.