Stock of the week - Airbus (26.08.2021)

Airbus (AIR.DE), one of the world's largest manufacturers, has managed to weather the pandemic and continues to benefit from struggles of its main rival, Boeing. European planemaker may also receive more attention from investors in the near future as it is expected to make its way into a DAX index in a recent overhaul. Let's take a closer look at the stock.

DAX overhaul

Airbus (AIR.DE) is one of the largest planemakers in the world. European planemaker together with its US rival Boeing are often viewed to have duopoly on the large passenger aircraft market. While Airbus has managed to weather the pandemic better than Boeing, it may soon draw even more attention from investors due overhaul of DAX index. German blue-chips index will widen from the current 30 to 40 members in September. Criteria for inclusion will also change with market capitalization taking priority over trading volume. Thanks to this, Airbus - one of the largest companies on the German exchange by market capitalization but with low turnover - will qualify for membership. Inclusion in the index will boost demand for Airbus shares from index-tracking investment vehicles, like for example Exchange-Traded Funds.

Business remains solid

Coronavirus pandemic has been a big hit to air travel and, in turn, to the demand for aircraft. Airbus experienced negative net result in Q1-Q3 2020 and a drop in revenue. However, things started to improve later on with Airbus swinging back to net profit. Sales in Q2 2021 were 70% YoY higher but still lagged results from pre-pandemic Q2 2019. New orders slowed during the pandemic and in early-2021 but also seem to be recovering. Airbus received orders for 96 new narrowbody planes in Q2 2021, the highest since Q1 2020. Net orders for widebody planes turned positive in Q2 2021 for the first time since Q4 2019. Deliveries reached 297 planes during the first six months of 2021, compared to 156 deliveries by Boeing.

While its core business remains solid even as aviation agencies begin to lift groundings on Boeing planes, Airbus does not stop to look for new opportunities. Company is expanding into the heavy freighter market, where it has been lagging Boeing. Airbus plans to start deliveries of its A350F jets, that have a payload capacity of 90 tonnes, in 2025. Jet will use 40% less fuel than similar Boeing freighters and major delivery companies, like UPS and DHL, have already expressed interest.

Guidance updated

Thanks to a solid business performance in the first half of 2021, Airbus decided to boost its full-year guidance for 2021. Company expects 600 commercial aircrafts to be delivered throughout the year, signalling that it expects similar H2 deliveries as in H1. Adjusted EBIT is expected to reach €4 billion while free cash flow before M&A is expected to reach positive €2 billion.

Airbus (AIR.DE) has been trading in a steady upward move since March 2020 lows. The most recent upward impulse, launched in November 2020, has a clear uptrend structure with higher highs and lows. The stock has recently made a pullback from post-pandemic highs above €120. Correction was halted slightly above the 100-period EMA on D1 interval (green line, €107.70 are). Stock started to recover later on and if it manages to break above the €115 swing area, a move towards fresh post-pandemic highs may be on the cards. On the other hand, in case downward move resume, the key support can be found at the lower limit of market geometry at €105.75.

Source: xStation5