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It owns 75% of narrow body airplanes engines. Makes money from recurring maintanence revenues. The backlog visibility is 6 years. Let’s dive into: Safran.

Safran SA demonstrates strong investment characteristics for quality-focused investors, with ROIC consistently above 15%, dominant market positions in aerospace propulsion, and compelling long-term growth drivers. At EUR 291, the stock appears fairly valued with modest upside potential to EUR 310-325 based on fundamental analysis.

The company benefits from exceptional business model stickiness through its CFM International joint venture with GE, which commands 72% of the narrow-body engine market and generates substantial recurring aftermarket revenues. However, current valuation reflects high growth expectations that may prove challenging to sustain given aerospace industry cyclicality.

Essential and sticky B2B business model drives predictable returns

Safran's aerospace propulsion segment represents the gold standard for business model stickiness in industrial markets. The CFM International joint venture creates virtually insurmountable switching costs for airline customers, who make multi-billion dollar aircraft investments with 20-30 year operational commitments tied to specific engine types.

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Customer dependency runs extraordinarily deep. Aircraft certification requirements lock airlines into specific engine-aircraft combinations, while pilot training, maintenance infrastructure, spare parts inventory, and insurance structures all become deeply integrated around proven platforms. The LEAP engine's exclusive position on Boeing's 737 family and dominant 75% share of Airbus A320neo orders creates captive customer relationships spanning decades.

The aftermarket business model generates exceptional recurring revenue streams through Rate Per Flight Hour (RPFH) contracts that provide predictable cash flows over entire engine lifecycles. Civil aftermarket revenue surged 21.3% in H1 2025, with spare parts growing 21.6%, demonstrating the compounding nature of the installed base. CFM's 31,800 CFM56 engines and rapidly growing LEAP fleet of 3,500+ engines provide a foundation for long-term service revenues.

Contract structures optimize total cost of ownership for customers while ensuring Safran's participation in value creation throughout aircraft operational lives. Multi-year maintenance agreements, component overhaul services, and engine lease programs create multiple revenue touchpoints that competitors cannot easily disrupt once established.

Dominant competitive positioning with substantial moats

Safran occupies unassailable competitive positions across its core aerospace segments, with the CFM joint venture representing perhaps the strongest competitive moat in global industrial markets.

Aerospace propulsion dominance is overwhelming. CFM International commands 72% of the narrow-body fleet market, with Pratt & Whitney holding just 25% and Rolls-Royce a mere 3%. The LEAP engine demonstrated superior reliability compared to Pratt & Whitney's PW1100G, with only 9% of aircraft out of service versus 46% for the competing engine during critical early operational periods.

The CFM partnership with GE provides complementary capabilities and shared risk that competitors cannot easily replicate. GE contributes core engine technology while Safran provides fan and low-pressure turbine expertise, creating a 50-year partnership renewed through 2050. This joint venture structure enables shared R&D costs for next-generation programs like RISE, targeting 20% fuel efficiency improvements.

Beyond propulsion, Safran leads adjacent markets. Safran Landing Systems serves as the world's largest aircraft landing gear manufacturer, equipping 35,000+ aircraft globally with 36% growth in A320 landing gear shipsets during H1 2024. The company ranks as the world's second-largest aircraft equipment manufacturer with €10.6 billion in equipment and defense revenue.

Barriers to entry remain insurmountable for new competitors. Engine development requires $10+ billion investments over 15-20 year cycles, stringent regulatory certification, established customer relationships spanning decades, and scale economies in manufacturing and aftermarket support that take generations to build.

ROIC profile consistently exceeds 15% threshold

Safran delivers exceptional capital efficiency that comfortably surpasses quality investment criteria, with current ROIC of 15.86% supported by sustainable competitive advantages and disciplined capital allocation.

Historical ROIC performance demonstrates consistency above the 15% threshold even through challenging periods. The company maintained strong returns throughout the COVID-19 recovery, with operating margins expanding from 12.6% in 2022 to 15.1% in 2024. ROE of 34.75% indicates outstanding equity returns driven by the company's market-leading positions.

ROIC sustainability benefits from structural advantages. Dominant market positions in narrow-body engines (through CFM), helicopter turbines, and landing gear create pricing power and recurring revenue streams. Approximately 50% of revenue derives from high-margin services and spare parts, while long-term RPFH contracts provide predictable cash flows that support consistent returns on invested capital.

Strong balance sheet supports continued capital efficiency. The company maintains a net cash position of EUR 1.7 billion with conservative debt-to-equity of just 9%, providing financial flexibility for growth investments while returning substantial capital to shareholders. Free cash flow generation of EUR 3.2 billion in 2024 demonstrates robust cash conversion supporting the high ROIC profile.

Capital allocation excellence drives shareholder value. Safran invests EUR 2.0 billion annually in R&D (7.3% of revenue) focused on environmental efficiency and decarbonization technologies. The company targets cumulative free cash flow of EUR 15-17 billion from 2024-2028, with approximately 70% returning to shareholders through dividends and share repurchases.

Valuation reflects optimistic growth expectations

Current valuation analysis reveals that Safran trades at fair value with modest upside potential, though the market appears to price in aggressive growth assumptions that may prove challenging to achieve consistently.

Reverse DCF analysis indicates high embedded expectations. At EUR 291, the current market capitalization of EUR 123.3 billion implies free cash flow growth of approximately 12-15% annually over the next decade. This appears aggressive given the cyclical nature of aerospace markets and Safran's current high base of EUR 3.2 billion in annual free cash flow.

Realistic growth projections suggest more modest returns. Historical FCF growth averaged approximately 25% during the 2021-2023 recovery period but normalized to roughly 3% growth from 2022-2024. Management guidance for EUR 15-17 billion cumulative FCF over 2024-2028 implies average annual FCF of EUR 3.75-4.25 billion, suggesting sustainable growth of 8-12% in the near term, declining to 5-8% in mature years.

Fair value analysis supports EUR 295-315 range based on realistic DCF assumptions using 9% FCF growth for years 1-5, declining to 6% for years 6-10, and 2.5% terminal growth. This provides modest upside of 1-8% from current levels, consistent with Morningstar's EUR 324 fair value estimate.

Key valuation catalysts include consistent FCF growth above 10% annually, successful LEAP aftermarket transition as older CFM56 engines require more service, defense revenue doubling by 2030, and margin expansion from the Collins Aerospace acquisition synergies valued at $1.8 billion.

Expected returns of 6-10% reflect quality but not exceptional opportunity

From the current EUR 291 price level, Safran offers solid but not exceptional return potential for quality-focused investors seeking above-15% ROIC companies with long-term compounding characteristics.

Base case scenario projects 6-10% annual returns over 3-5 years, driven by high single-digit revenue CAGR through 2028 and modest valuation expansion. Revenue growth benefits from LEAP production ramp-up (deliveries increased 10% to 729 units in H1 2025), strong aftermarket recovery, and increased defense spending. This scenario assumes execution of management's financial targets while maintaining current valuation multiples.

Upside scenario could deliver 10-15% annual returns if Safran achieves accelerated LEAP deliveries, faster Boeing 737 MAX recovery, successful China C919 market penetration, and defense spending acceleration. Multiple expansion would support price appreciation to EUR 350-400 by 2027-2028 under this scenario.

Downside protection appears limited given Safran's dominant market positions and recurring revenue characteristics. Even in adverse scenarios, the installed base of CFM engines provides defensive cash flow generation, while the company's net cash position and investment-grade credit rating offer financial stability.

Conclusion

Safran SA represents a high-quality industrial investment with ROIC consistently above 15%, exceptional competitive moats, and exposure to long-term aerospace growth trends. The company's dominant position in narrow-body engines through the CFM joint venture provides unmatched business model stickiness and recurring revenue generation.

However, at EUR 291, the stock appears fairly valued rather than attractively priced, with modest upside potential to EUR 310-325 based on realistic growth assumptions. Expected returns of 6-10% annually meet quality investment criteria but may disappoint investors seeking exceptional value opportunities.

For quality-focused portfolios, Safran merits consideration as a core aerospace holding with superior ROIC characteristics and long-term compounding potential, though current entry point requires patience for attractive returns. The combination of market leadership, recurring revenue streams, and exposure to global fleet modernization trends supports the investment case despite full current valuation.
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