MTU Aero Lowers Guidance for Maintenance, Repair, and Overhaul Business; Shares Fairly Valued

On the surface, wide-moat MTU Aero Engines reported strong revenue and EBIT growth, rising by 23% and 53%, respectively. However, this was boosted by a low comparable base and favorable foreign-exchange developments. Nevertheless, the group is well positioned to capitalize on the recovery in demand for new aircraft engines as well as sales of spare parts. Midpoint sales guidance of EUR 5.3 billion for the full year was maintained in euro terms; however, the maintenance, repair, and overhaul business is now only expected to grow in the high-teens percentage range, versus high-20s previously, on an organic U.S. dollar basis due to lower-than-expected geared turbofan engine work. We maintain our EUR 200 fair value estimate and believe shares are trading near fair value territory. We continue to prefer Safran, which has more upside.