European Airport Stocks Downgraded by JPMorgan After Strong Performance

JPMorgan has downgraded European airport stocks after a period of robust performance, indicating a shift in investor sentiment.

Aena, which was once a favored choice for JPMorgan, has had its rating downgraded from “overweight” to “neutral.” In contrast, Aeroports de Paris has been upgraded to “overweight.” This adjustment reflects contrasting stock price performances, with ADP’s shares declining by 5% year-to-date, while Aena’s shares have increased by 22%.

The downgrade for Aena arises from the notion that its impressive year-to-date performance has already captured much of the potential growth. The stock has surged by 70% since the end of 2022, outpacing both its competitors and broader market trends. As a result, the expected upside to its price target has diminished, leading to a perception that the stock is fairly valued. Additionally, uncertainties about Aena’s future free cash flow during the next regulatory period, covering 2027 to 2031, have heightened investor caution. The company anticipates a significant increase in capital expenditures during this time, which raises concerns about its ability to sustain a high free cash flow yield.

On the other hand, ADP’s stock, which has faced political and economic challenges in France, is now viewed as presenting a more attractive risk-reward profile. The market has already factored in the uncertainties surrounding potential tax increases in France, particularly concerning the corporate tax rate and airline ticket tax, which creates potential for upside if the political situation stabilizes. Moreover, ADP’s shares could benefit from a resurgence in Chinese air traffic, which is still recovering from pre-COVID levels. The market has yet to fully acknowledge the value of ADP’s investment in GMR, its Indian airport operator.

JPMorgan remains cautious regarding Fraport, maintaining a neutral rating. While the company shows promise for anticipated tariff increases, uncertainties about traffic growth for 2025 and the regulatory approval of these tariff hikes raise some unanswered questions. Fraport is still waiting for positive free cash flow, initially expected in 2024 but now delayed until 2025.