This European defense name is set to ’publish strong H1’25 results’ says Bernstein

Investing.com -- French engine and aircraft equipment manufacturer Safran (EPA:SAF) is set to report strong first-half 2025 (H1’25) results, according to Bernstein analysts, who project upside to current targets driven by robust aftermarket activity and continued momentum in its Propulsion division.

“We expect Safran to publish strong H1’25 results, and see upside to the current targets,” the analysts led by Adrien Rabier said in a note, highlighting improved spare parts availability and easing supply chain headwinds.

The team expects spare parts sales to grow 20% in the second quarter, significantly above the company’s low-teens guidance. “We would not be surprised to see an upgrade of some of the 2025 targets,” they added.

The broker expects Propulsion to be the main contributor to earnings, supported by life extensions of older aircraft and continued demand for CFM56 and V2500 engine services. Military sales, including demand for Rafale and helicopters, are also expected to remain solid.

While Safran has reiterated its guidance for 15% to 20% growth in LEAP engine deliveries this year, the pace of recovery has been sluggish.

“Only 21 LEAP-powered A320 family planes were delivered in June, meaning that the recovery has yet to happen,” Bernstein noted. However, it also pointed out that “slow deliveries support the profitable aftermarket sales.”

In other areas, the Equipment segment faces difficult year-on-year comparisons after a favorable one-off in H1’24.

Meanwhile, the Interiors division is on track to deliver positive EBIT margins, supported by strong growth in business-class seat deliveries and improved profitability.

Interiors revenues rose 17% in Q1, and Bernstein sees further recovery in margins after the division reached breakeven in 2024.

On valuation, analysts note that Safran stock is trading at 17x EV/EBITDA, which they say is justified by the current environment and remains below most peers. “We see some re-rating potential for Safran as the company delivers on the Interiors business turnaround,” they wrote, though they noted that GE’s valuation premium is likely to persist.

Bernstein raised its EBIT forecast for the first half to €2.56 billion, 12% above consensus, and increased its price target on Safran to €308 from €289.

While still favoring GE Aerospace (NYSE:GE) and Howmet Aerospace (NYSE:HWM_p) for greater aftermarket exposure, the analysts believe Safran’s lagging stock performance opens a window of opportunity.

“We see a tactical opportunity for Safran, because of lower expectations into H1’25,” the note said.