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A350 Progress and Airbus Order-book Make EADS a “Compelling” Buy

EADS has celebrated a big jump in 1Q pre-tax earnings as cash cow Airbus continues to deliver.

Year-on-year sales at Airbus Commercial rose 16 per cent to €8.8bn in the 1Q, accounting for roughly three-quarters of group revenue at EADS.

The increase was driven by 144 aircraft deliveries – 13 more than a year previously – but far more significant was a drop-off in R&D expenses, which alongside stronger aircraft pricing helped take Airbus Commercial’s pre-tax earnings to €463m, more than double those of a year earlier.

Strong sales of the A320neo boosted Airbus’ backlog by 10 per cent to €575bn and the airframer expects orders to exceed deliveries this year, though production ramp-ups should see EADS hit its earnings guidance of €3.5bn for the full year.

The A350 also remains on track for a first flight this summer, which has encouraged investors already pleased with Airbus’s strong order-book.

UBS calls EADS “the most compelling investment opportunity in the [aviation] sector at the moment”, and predicts that earnings will reach €5bn by 2015, driven by Airbus and a widening of margins to 10 per cent.

Bank of America (BoA) puts Airbus’ 1Q 2013 margin at around seven per cent and has applauded the low-key roll-out of the first A350 (thus avoiding the hubris of 787-style cock-ups). In fact, so enthused has BoA been with Airbus’ recent performance that it forecasts EADS earnings of €3.8bn this year, well ahead of the investor consensus.

Good news for investors, then, but German car manufacturer Daimler may come to rue the April 2013 sell-off of its 7.5 per cent stake in EADS.

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