Yahoo Finance MTU Aero Engines AG (ETR:MTX): How Much Money Comes Back To Investors?
Two important questions to ask before you buy MTU Aero Engines AG (ETR:MTX) is, how it makes money and how it spends its cash. This difference directly flows down to how much the stock is worth. Operating in the aerospace and defense industry, MTX is currently valued at €9.0b. I will take you through MTX’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.
Check out our latest analysis for MTU Aero Engines
What is free cash flow?
Free cash flow (FCF) is the amount of cash MTU Aero Engines has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
There are two methods I will use to evaluate the quality of MTU Aero Engines’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Along with a positive operating cash flow, MTU Aero Engines also generates a positive free cash flow. However, the yield of 2.45% is not sufficient to compensate for the level of risk investors are taking on. This is because MTU Aero Engines’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does MTU Aero Engines have a favourable cash flow trend?
Does MTX’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 13%, ramping up from its current levels of €610m to €690m in three years’ time. Furthermore, breaking down growth into a year on year basis, MTX is able to increase its growth rate each year, from -6.2% in the upcoming year, to 3.0% by the end of the third year. The overall future outlook seems buoyant if MTX can maintain its levels of capital expenditure as well.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto MTU Aero Engines relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research MTU Aero Engines to get a better picture of the company by looking at:
Valuation: What is MTX worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MTX is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on MTU Aero Engines’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
