Lufthansa lowers profit forecast for 2024 – Shares under pressure

Investing.com - Deutsche Lufthansa (ETR:LHAG) lowered its profit forecast for the current year on Friday. This announcement triggered a significant reaction on the stock market: the stock initially plummeted to its lowest level since October 2022, but then recovered somewhat, last trading at €5.63, a decline of about 2.74%.

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Lufthansa now expects an adjusted earnings before interest and taxes (EBIT) for 2024 between €1.4 billion and €1.8B. The airline had originally targeted about €2.2B.

The profit forecast is significantly dependent on the performance of Lufthansa Airlines and the traditionally important fourth quarter for Lufthansa Cargo, the airline stated.

Lufthansa must also revise its expectations for Adjusted Free Cash Flow, a key indicator of a company's financial health. Instead of the previously expected minimum of €1B, a "significantly" lower figure is now forecast.

Preliminary results for the second quarter of 2023 confirm the challenges Lufthansa currently faces. The Lufthansa Group achieved an adjusted EBIT of €686M, significantly less than the €1.1B in the same period of the previous year. Particularly, a market-driven decline in average revenues across all traffic areas, especially in Asia, impacted the result.

RBC analyst Ruairi Cullinane noted in a brief report that the second half of 2024 will now be crucial for Lufthansa. To reach the midpoint of the new forecast range, the airline would need to achieve an adjusted EBIT of around €1.76B, slightly below the €1.87B in the second half of 2023.

He further explained that Lufthansa's revised annual forecast, following similar warnings from Air France-KLM (EPA:AIRF) and Delta Airlines (NYSE:DAL), raises concerns for the entire aviation sector. Despite these challenges, the Canadian investment bank remains optimistic about the European aviation sector overall but points to more attractive opportunities in other areas of the sector. Cullinane rates Lufthansa stock as "Sector Perform" with a price target of €7.50.

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