Thursday, 28 November 2013

Analysis of EADS

A German aerospace and defence company

Company: Airbus (prev. EADS)

Business: A German group working with aerospace and defence. In the group there are four daughter companies: Airbus (building commercial as well as military aircrafts), Astrium (space program with for instance satellites), Cassadian (global security systems and solutions - IT networks) and finally Eurocopter (civil as well as military helicopters)

Active: They are present on over 170 sites world wide and at least claim to promote ethics, compliance and transparency (but we all know weapons end up everywhere anyway...)

P/E: 35.1

contrarian values of P/E, P/B, ROE as well as dividend

The P/E for EADS is crazy high with 35.1 and the P/B is even worse with 4.2 that is insane! This gives a very clear no go according to Graham. Their earnings to sales is down at only 2% so pretty bad! The ROE is so, so with almost 12% but the book to debt is insanely bad with a ratio of 0.1 that is like a bank! In the last five years they have had a very nice growth of yearly 5.5% which gives a motivated P/E of 16 to 19 which means that EADS is highly overvalued by the market. Are people expecting a more serious war to break out? They spend a large chest of gold on research but I guess it is a tough business because they are up at 260% of their earnings so it feels as if it is a bit too much. They do pay a tiny dividend of 1.1% which represents as much as 40% of their earnings so no real reason to increase but can probably at least remain as it is.

Conclusion: When I saw that Airbus was part of EADS and that it was a defence company I got fairly excited about it. The rule says never to invest in airplane companies but a company building airplanes could be exciting. The defence part I find less of interest. However... my high hopes quickly eroded when the data started to be analysed and both I and Graham gives a very clear no on this company. It looks to be far too highly valued to be of any interest besides from selling.

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