Lufthansa downgraded to “market perform” amid weak yield outlook

Investing.com -- Lufthansa (ETR:LHAG) has been downgraded to “market perform” from “outperform” by Bernstein in a note dated Wednesday, with its target price held at €7.50. 

The decision is driven by limited upside at current valuation levels and a weaker yield outlook compared to European legacy peers.

Despite achieving its best punctuality in a decade, Lufthansa’s turnaround remains slow. The airline is still operating with more staff than in 2019, despite having a smaller fleet and lower available seat kilometers. 

Labor productivity continues to lag, while fleet complexity, spanning A330, A340, A350, A380, 747, and 787 models, adds operational inefficiencies.

Aircraft delivery delays have further delayed simplification, limiting near-term cost improvements.

Bernstein expects Lufthansa to deliver the weakest yield growth among its legacy peers. 

Air France-KLM benefits from strong premium demand and soft comparables following the 2024 Olympics, while IAG operates in more constrained long-haul markets, enabling better pricing. 

Lufthansa lacks both the easing comps of Air France-KLM and the supply-constrained environment that supports IAG’s yield development.

In Q2, Bernstein projects Lufthansa will post revenue of €10.53 billion, 0.9% below consensus. 

Adjusted EBIT is expected at €794 million, 5.7% below consensus, while adjusted net income is forecast at €631 million, slightly above the consensus of €620 million.

Valuation metrics also reflect Bernstein’s more cautious stance. Lufthansa’s FY2025 price-to-earnings ratio is estimated at 6.6x, with earnings per share forecast at €1.09. 

Its return on invested capital in 2029 is projected at 8.1%, below its weighted average cost of capital of 10.7%, resulting in a negative spread of -2.7%. 

The implied price from long-term valuation multiples ranges between €7.6 and €9.1, with Bernstein’s target price of €7.50 implying modest upside of 3% from the current trading price of €7.17 as of July 1.

While the group should benefit from stable fuel prices, currently around $700 per metric ton, and sector-wide supply constraints, Bernstein sees stronger value elsewhere. 

The brokerage remains more constructive on Air France-KLM, Ryanair, and IAG, citing stronger yield dynamics and more favorable structural tailwinds.

Bernstein notes that meaningful progress on Lufthansa’s operational and cost transformation could warrant a more positive reassessment. Conversely, signs of stalling would reinforce the current neutral stance.