Jefferies upgrades Fraport to “hold,” raises price target to €70 on FCF clarity

Investing.com -- Jefferies has upgraded Fraport AG (ETR:FRAG) to “hold” from “underperform” and raised its price target to €70 from €52, citing improved visibility on free cash flow (FCF) and tighter capex control, sending shares up over 4% on Thursday. 

The revised price target implies a 3% upside from the previous close of €68.05. The move follows an about 34% year-to-date re-rating in Fraport’s shares, despite forward EPS estimates declining around 12% over the same period.

The brokerage has shifted its valuation method for Fraport’s Frankfurt operations to a discounted cash flow (DCF) model, replacing the earlier RAB-plus-multiple approach. 

With major capex rolling off and Terminal 3 nearing completion, the DCF model was deemed more appropriate to capture the time value of expected cash flows. 

The change resulted in an 11% uplift in Frankfurt’s enterprise value and contributed €16 to the revised price target, with an additional €2 from international operations and other adjustments.

Jefferies increased its EBITDA estimates by 2-3% across the forecast period. For FY2025E, EBITDA is now forecast at €1.38 billion, up from €1.34 billion previously. 

Revenue is projected at €4.58 billion, and net profit attributable to shareholders is estimated at €363 million.

Diluted EPS for 2025 is projected at €3.93, down from the previous €4.46. The 2025 dividend per share is forecast at €1, with yields expected to reach 2.7% in 2027, below the 4.2% peer average.

Fraport’s financial position remains leveraged, with net debt projected at €9.73 billion in 2025 and a net debt-to-EBITDA ratio of 6.1x.

The group is expected to return to positive FCF within 6–12 months. Free cash flow is forecast at €-19 million in 2025E, turning positive at €218 million in 2026E and €469 million in 2027E.

However, Jefferies cautions that any significant deviation above the mid-term €500 million maintenance capex could prompt a sharp derating.

Jefferies flagged limited catalysts ahead, noting that 2025 EBITDA and FCF guidance appear achievable, with potential for upside revisions.

The upgrade also reflects a lack of near-term negatives sufficient to offset the growing FCF momentum. Still, the broker remains cautious about 2026, where its EBITDA forecast of €1.43 billion remains below the consensus estimate of €1.45 billion.

Despite recent positive sentiment from the H1 call, Jefferies warns the stock now faces a high performance bar for H2 and FY results.

Retail and Ground Handling segments have seen EBITDA upgrades, but the premium valuation and modest dividend yield constrain further upside.

Jefferies continues to value international concessions separately using individual DCFs.

The brokerage reiterates that while Fraport is closer to sustainable cash generation, earnings remain vulnerable to macroeconomic shifts, higher wage costs, or increased maintenance spending.