Source: Sharecast
"Medium term, we see a multi-year earnings and re-rating story, as the BA turnaround and delivery of the NG fleet offer scope for further consensus upside and re-rating potential as the company approaches best-in-class return on invested capital and free cash flow generation," it said.
The bank updated its model for Q3 results and ahead of full-year results in February. It raised EBITDA estimates by 5-9% in FY24-26 and earnings per share estimates by 9-20% on lower interest expenses and share buybacks.
Jefferies said BA’s target to reach 15% EBIT margins by 2027 versus 10% in 2023 appears a "sensible" midcycle target, but it believes may be conservative in an upcycle. It noted that Iberia already makes 14% margins versus BA’s 10% in 2023.
"Our benchmarking shows fuel costs are the largest driver of margin differential. We believe this should narrow as BA receives its A320/1 Neos and 777-9/787-10s," it said.
"Achieving the same new generation fleet mix as Iberia alone would drive circa 500bps of margin expansion, on top of the announced self-help initiatives."
Jefferies - which has a 'buy' rating on the shares - added that the valuation looks compelling.
At 0955 GMT, the shares were up 1.9% at 302.90p.
