Lufthansa Shares Drop Amid Downgrade

Lufthansa shares fell over 2% on Friday after HSBC downgraded the airline from Buy to Hold, citing limited visibility on earnings and reducing its price target from €8.00 to €7.00.

Recent Performance and Guidance

HSBC's cautious outlook comes after Lufthansa's recent Q3 conference call. During the call, the airline lowered its 2024 revenue per available seat kilometer (RASK) guidance to a "mid-single digit" decline, shifting from a previous expectation of a "low to mid-single digit" decline.

HSBC has also lowered its adjusted EBIT estimate for Lufthansa's 2024 fiscal year to €1.49 billion, which is below the consensus expectations of €1.66 billion. The bank’s estimate for 4Q24 adjusted EBIT is 31% lower than Visible Alpha consensus, reflecting doubts about the company meeting full-year targets.

Cargo Performance Concerns

While Lufthansa reiterated its full-year EBIT guidance at €1.4-1.8 billion, HSBC sees potential challenges, particularly in the cargo segment. The cargo division's Q3 adjusted EBIT was only €38 million, below the consensus of €49 million. This disappointing performance comes after Kuehne & Nagel's CEO recently scaled back air cargo expectations.

Limited 2025 Guidance

HSBC also expressed concerns regarding Lufthansa's limited guidance for 2025, citing "limited visibility." The company's new CFO was unable to provide specific details on capacity planning for the following year, which raises concerns given the stability at the CEO level.

The analysts stated, "While we continue to believe that the market is undervaluing Lufthansa's MRO business, the limited visibility that the company provides at this point and our lower-than-consensus estimates for 2024 and 2025 make us more cautious on the stock." They added, "We are generally cautious on the aviation sector going into 2025."