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Investing.com -- Fraport AG’s (ETR:FRAG) stock has been upgraded to "hold" by Deutsche Bank (ETR:DBKGn), with a target price raised to €50, up from €40.
This upgrade comes after a 37% rebound in the stock from its August 2024 lows, despite lowered earnings projections.
Specifically, Deutsche Bank has revised its EPS forecasts down by 14% for 2025 and 21% for 2026, along with a 4% reduction in free cash flow estimates for 2026.
The upgrade follows the market’s focus on the potential benefits from Germany’s fiscal measures, even though Deutsche Bank believes these have already been priced into the stock.
Key risks to Fraport, however, remain well-flagged. These include airlines not expanding capacity meaningfully due to structural issues like unionized labor, rising charges, and oversupply.
Fraport’s high operational and financial leverage, with a net debt-to-EBITDA ratio of around 6.5x, is another risk.
The company faces debt maturities exceeding €1 billion annually, compounded by rising long-term bund yields, which could affect financial stability.
Additionally, the stock’s valuation is nearing its peak, trading at around 11.6x EV/EBITDA on a 1-year forward basis, presenting the potential for de-rating if consumer confidence weakens.
Despite these risks, the market remains optimistic about growth prospects tied to German fiscal measures, though Deutsche Bank points out that these expectations are already reflected in the stock price.
Projections for German GDP growth, particularly in the later part of the decade, are positive but gradual. The fiscal measures, including tax cuts starting in 2028, are seen as incremental drivers for economic growth.
For Fraport, any benefit from increased infrastructure spending is expected to materialize through a traffic growth multiplier, which Deutsche Bank estimates to be higher than historical trends.
Consensus forecasts anticipate traffic growth at Frankfurt airport of 2.8% in 2025, 3.8% in 2026, and 4.4% in 2027, compared to much slower GDP growth projections of 0.1% in 2025, 1.1% in 2026, and 1.8% in 2027.
This implies a higher traffic growth multiplier, particularly in 2026 and 2027, with figures of 3.4x and 2.5x, respectively, compared to an average of 1.9x from 2003 to 2019.
In light of these factors, Deutsche Bank has revised its traffic growth expectations for Frankfurt airport to 2% in 2025, 3.4% in 2026, and 4.9% in 2027.
This leads to a slight increase in EBITDA by 1-2%. However, Deutsche Bank remains cautious on interest cost assumptions given the current environment of rising bund yields. EPS projections have been revised upward by around 2% or less.