Is Safran Overvalued Amid Strong YTD Gains and Strategic Expansion?

The question of whether Safran (SAF) is overvalued has become a focal point for investors following its 45.3% premium to discounted cash flow (DCF) fair value estimates. This premium, derived from models like Alpha Spread's €187.23 intrinsic value and Simply Wall St's €206.16 calculation, contrasts sharply with the stock's current price of €293.70–€299.50 according to Alpha Spread's analysis. Yet, Safran's recent momentum-driven by robust aerospace and defense growth-has fueled bullish narratives that challenge these DCF-based conclusions. This analysis explores the tension between quantitative valuations and strategic narratives to assess overvaluation risks and future upside potential.

DCF Valuations: A Mixed Picture of Overvaluation

DCF models, which discount projected free cash flows to estimate intrinsic value, suggest Safran is trading at a significant premium. According to Alpha Spread's base-case analysis, Safran values at €187.23 per share, implying a 36% overvaluation relative to its current price. Similarly, Simply Wall St's €206.16 estimate points to a 45.3% premium. These models rely on conservative assumptions, such as a 2-stage Free Cash Flow to Equity framework, with terminal values discounted to present-day terms. However, another Simply Wall St analysis projects a fair value of €289.94, suggesting the stock is only 2.3% overvalued. This divergence highlights the sensitivity of DCF models to growth rate assumptions and discount rates, particularly for cyclical sectors like aerospace.

Critically, DCF valuations often struggle to capture intangible assets or strategic shifts. For example, Safran's recent €100–150 million annual tariff impacts and supply chain challenges are factored into these models, but its long-term investments in green propulsion and defense contracts may not be fully reflected. This creates a gap between DCF outputs and the company's forward-looking narrative.

Strategic Expansion: A Bullish Narrative for Growth

Safran's 2025 performance has been underpinned by two key drivers: propulsion demand and defense sector expansion. In Q3 2025, LEAP engine deliveries surged 40% year-over-year to 511 units, supported by a new assembly line in Morocco. This has propelled propulsion revenue growth to 25.6%, with spare parts sales for civil engines rising 16.1%. Analysts at Goldman Sachs and Jefferies have highlighted Safran's "execution quality" in converting this operational momentum into EBIT growth, with the latter noting that its guidance upgrade implies stronger profit margins.

In defense, Safran's role as the exclusive powerplant provider for the Franco-German Future Combat Air System (FCAS) positions it to benefit from long-term European defense spending. Additionally, its U.S. market expansion and partnerships in sustainable aviation align with global trends toward decarbonization. These strategic moves, combined with a 11–13% full-year revenue growth target, have led some analysts to argue that Safran is undervalued, with a fair value of €307.62 as cited by Simply Wall St.

Contrasting DCF and Narrative-Based Valuations

The disconnect between DCF valuations and Safran's bullish narrative stems from differing time horizons and assumptions. DCF models, by design, prioritize near-term cash flows and conservative growth projections. For instance, Alpha Spread's DCF assumes free cash flows will peak at €5.86 billion by 2029 and €7.65 billion by 2035, but does not explicitly account for the compounding effects of Safran's green propulsion initiatives or defense contract wins. Conversely, narrative-based valuations emphasize Safran's ability to capture market share in high-growth areas, such as the engine aftermarket (up 21.3% in H1 2025) and military aviation.

This tension raises a critical question: Is the 45.3% premium justified by Safran's strategic positioning, or is it a reflection of market overenthusiasm? The answer lies in reconciling these perspectives. While DCF models suggest the stock is overvalued by 2–36%, they often fail to incorporate the compounding benefits of Safran's industrial footprint expansion (e.g., Morocco's LEAP production) and its leadership in sustainable aviation. Analysts at Simply Wall St acknowledge that their 2.3% overvaluation estimate assumes "modest" growth in propulsion and defense. If Safran's strategic initiatives accelerate, the fair value could rise closer to the €307.62 target cited by some analysts.

Risks and Future Upside

Despite the bullish narrative, risks remain. Macroeconomic uncertainties, including potential changes in French budget policies and global trade tensions, could cap Safran's valuation multiple. Additionally, the market's muted reaction to Safran's guidance upgrade suggests that much of the near-term upside may already be priced in. However, for long-term investors, the company's focus on high-margin areas like defense and sustainable propulsion offers a compelling case for future upside.

Conclusion

Safran's 45.3% premium to DCF fair value reflects a market that is pricing in both its current operational strength and long-term strategic potential. While DCF models highlight overvaluation risks, they often overlook the compounding effects of Safran's industrial expansion and innovation in green propulsion. For investors, the key is to balance these quantitative and narrative-based assessments. If Safran can sustain its momentum in propulsion and defense while navigating macroeconomic headwinds, the premium may prove justified. However, those with a shorter time horizon or risk-averse outlook may find the DCF-based valuations more compelling.