SAF-FRA - Embedded Expectations Analysis - 2018 10 17
Safran SA (SAF:FRA) currently trades above recent averages relative to UAFRS-based (Uniform) Earnings, with a 18.6x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may have concerns about their ability to reduce fixed costs and meet guidance, as well as the potential of investments in innovation.Specifically, management is confident that they did not see a reduction in their fixed costs, and may lack confidence in their ability to reduce them going forward. Moreover, they may be concerned about their ability to execute on their CFM56-LEAP transition, and sustain strong performance in their on-demand mobility segment. They may also lack confidence in the sustainability of success in CFM commercial, and that their acquisition of Rockwell Collins' assets will enable them to expand their electrical actuation and flight control segments. Furthermore, they may lack confidence in their ability to meet their FY 2018 guidance targets, particularly organic revenue growth, LEAP production rates, and operating margins, specifically their Aerospace and Defense segments. Finally, they may be concerned about their substantial amount of investments in innovation.
Safran designs, develops and manufactures high technology electronics through three businesses: Aerospace, Defense and Security. Aerospace includes Aerospace Propulsion (propulsion systems for commercial aircraft, military transport, training and combat aircraft, rocket engines, civil and military helicopters) and Aircraft Equipment (mechanical, hydromechanical and electromechanical equipment); Defense (optronic, avionic and electronic systems); and Security (biometric technologies for fingerprint, iris and face recognition, identity management products, access management and transaction security, including tomographic systems for detection of dangerous or illicit substances in baggage).
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