Deutsche Lufthansa (XTRA:LHA) Buys Into TAP As Fair Value Stays In Focus

Portugal’s decision to sell a 44.9% stake in TAP Air Portugal to Deutsche Lufthansa (XTRA:LHA) for €1.025b puts the airline group’s expansion plans and capital allocation firmly in focus for shareholders.

The TAP announcement lands at a tricky moment for Deutsche Lufthansa’s share price. The stock closed at €7.224, with a 1-day share price return of 2.53% as investors reacted to the deal. However, the 30-day and 90-day share price returns are down 4.32% and 19.75% respectively, signalling fading short-term momentum. At the same time, the 3-year and 5-year total shareholder returns of 21.11% and 49.13% point to a much stronger longer-run journey than the recent pullback implies.

Scan other airline and transport opportunities moving on similar themes to Deutsche Lufthansa’s TAP move with a curated set of 197 high quality undervalued stocks that pair balance sheet strength with meaningful cash generation.

Deutsche Lufthansa is paying €1.025b for control of TAP while its own share price has fallen sharply in recent months. Is the bigger opportunity now in the valuation, or has most of the upside already played out?

Most Popular Narrative: 24% Undervalued

The widely followed narrative pegs Deutsche Lufthansa’s fair value at €9.46 versus the recent close at €7.22. This frames the TAP deal against a backdrop of a stock trading below that modelled estimate and puts execution and earnings quality in the spotlight.

The market appears to be pricing in sustained, above-trend revenue growth for Lufthansa driven by elevated post-pandemic travel demand, continued international expansion (e.g., ITA Airways integration and additional wide-body deliveries), and successful upselling to premium and ancillary products, despite mounting evidence of softening yields and mixed forward bookings in key markets, which could undercut top-line expectations.

See why 63 investors see Deutsche Lufthansa as 24% undervalued.

Result: Fair Value of €9.46 (UNDERVALUED)

Still, a faster payoff from fleet modernization, or stronger than expected results from Lufthansa Cargo and the MRO segment, could quickly challenge this cautious narrative.

Find out about the key risks to this Deutsche Lufthansa narrative.

Another View: What Multiples Say About Deutsche Lufthansa

The fair value estimate of €9.46 is based primarily on future cash flows. The current P/E of 12.8x suggests a different perspective. It stands above the Global Airlines average of 11x and above a fair ratio of 19.1x that our model suggests the market could move toward over time.

This combination of being screened as expensive versus peers on today’s earnings, yet screened as good value against the fair ratio, raises a straightforward question. Are investors overpaying for current profit quality or underpaying for what Deutsche Lufthansa could earn if expectations play out?

See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Sentiment around Deutsche Lufthansa is clearly split, so move quickly, test the numbers yourself and weigh both sides of the story with 2 key rewards and 2 important warning signs

Looking for more ideas beyond Deutsche Lufthansa?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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