The Gemini Report – Investment Deep Dives

Investment Analysis: Fraport AG (FRA.XETRA)

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The Gemini Report - Investment Deep Dives
The Gemini Report – Investment Deep Dives
Investment Analysis: Fraport AG (FRA.XETRA)
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1. Company Overview & Business Model Analysis

Fraport AG is a globally active airport operator, managing a portfolio of 29 airports across four continents.1 The company’s business model is diversified across four primary segments, providing a mix of regulated and commercial revenue streams. This structure offers a degree of resilience but also exposes the group to a varied set of operational and market-specific challenges.

Core Business Segments and Revenue Streams

Fraport’s operations are organized into four distinct segments, each with its own revenue drivers and profitability profile.

  • Aviation: This segment forms the core of Fraport’s traditional airport business. It operates the landside and airside infrastructure at Frankfurt Airport, generating revenue from regulated airport charges paid by airlines for takeoffs, landings, and passenger processing, as well as from aviation security fees.3 In fiscal year (FY) 2024, the Aviation segment’s revenue increased by 12.3% to €1,234.5 million, up from €1,098.8 million in FY2023. This growth was primarily driven by a post-pandemic recovery in passenger traffic and positive price effects on airport charges.5
  • Retail & Real Estate: A significant contributor to profitability, this segment focuses on non-aeronautical revenue streams. It includes the management and leasing of retail space within terminals, operation of airport parking facilities, and the development and rental of real estate on and around the airport grounds.3 In FY2024, revenue grew by 7.6% to €536.7 million. A key performance indicator for this segment is net retail revenue per passenger, which edged up to €3.35 in FY2024 from €3.30 in FY2023, indicating a slight improvement in commercial efficiency despite ongoing economic pressures.5
  • Ground Handling: This segment provides essential but highly labor-intensive services at Frankfurt Airport, including aircraft loading, baggage handling, and passenger services.3 While revenue increased by 10.2% to €745.5 million in FY2024, the segment’s profitability remains a significant challenge. Segment EBIT was negative at -€81.9 million in FY2024, a deterioration from -€73.9 million in FY2023.5 The persistent unprofitability of this segment acts as a structural drag on the group’s overall margins. The segment’s revenue growth is being outpaced by rising costs, particularly personnel expenses, which grew by 13.6% in FY2024.5 This dynamic, exacerbated by industry-wide labor shortages and wage pressures in Europe 6, suggests that simply increasing the top line in this business line may amplify losses. Consequently, Fraport’s consolidated profitability is highly dependent on the performance of its more profitable Retail & Real Estate and International segments to offset these structural losses.
  • International Activities & Services: This segment has emerged as the group’s primary growth engine and largest revenue contributor. It encompasses the acquisition, operation, maintenance, and expansion of airports and infrastructure facilities outside of Germany, typically under long-term concession agreements.3 In FY2024, the segment generated revenue of €1,910.3 million. When adjusted for revenue from construction services (under IFRIC 12 accounting rules), the segment’s revenue grew by a strong 13.6% to €1,375.4 million, propelled by robust traffic performance at key international assets like Fraport Greece and Lima Airport.5

Geographic Footprint and Key Airport Assets

Fraport’s global portfolio provides significant geographic diversification, mitigating risks associated with any single market or region.

  • Frankfurt Hub (FRA): Frankfurt Airport is the cornerstone of the Fraport Group. It is Germany’s largest airport by passenger volume, Europe’s leading cargo hub, and offers the highest number of direct connections worldwide at approximately 300 destinations.2 The airport’s strategic importance is amplified by its role as the primary hub for Deutsche Lufthansa AG, which accounts for over 60% of passenger traffic at the site.11 This creates a powerful symbiotic relationship but also introduces a significant customer concentration risk.
  • International Portfolio: Fraport holds majority or full ownership in a diverse set of international airports. Key assets include an 80.01% stake in the Lima, Peru airport; a 65% stake in a consortium operating 14 regional airports in Greece; a 51% stake in Antalya, Turkey; and 100% ownership of airports in Ljubljana, Slovenia, and two in Brazil (Fortaleza and Porto Alegre).8 These assets operate under long-term concession agreements with varying terms and fee structures (e.g., fixed minimums, revenue-sharing, or EBITDA-based components), providing a diversified and long-duration stream of international earnings.4 The company actively manages this portfolio, as demonstrated by recent strategic moves in 2024, including the divestment of stakes in Delhi, India, and St. Petersburg, Russia, and the successful bid for a new 40-year concession for Kalamata Airport in Greece.13

Business Model Characteristics

The airport operator business model is defined by high capital intensity, a stringent regulatory framework, and long-term operational rights.

  • Asset Intensity and Capital Expenditure: The business requires continuous and substantial investment in large-scale infrastructure such as runways, terminals, and baggage systems. This is exemplified by the ongoing construction of Terminal 3 in Frankfurt, one of Europe’s largest privately financed infrastructure projects.15 This high asset intensity results in significant annual depreciation charges and often leads to negative free cash flow during periods of major expansion.
  • Regulatory Environment and Concession Structures: A significant portion of Fraport’s revenue, particularly in the Aviation segment at Frankfurt, is subject to economic regulation by government authorities, which can cap aeronautical charges. While this limits upside potential, it also provides a degree of revenue predictability. In its international operations, Fraport operates under various concession models, each with a unique risk-reward profile determined by its duration, fee structure, and required capital investments.4

2. Industry Dynamics & Market Structure

Fraport operates within a global aviation industry that is navigating a complex post-pandemic landscape characterized by uneven recovery, intensifying competition, and mounting regulatory and sustainability pressures.

Global and European Market Trends

The global airport industry has largely recovered from the COVID-19 pandemic. Global passenger traffic was estimated to have reached 9.5 billion in 2024, surpassing 2019 levels by 4%.17 This recovery has been primarily fueled by a strong resurgence in international leisure travel. Long-term forecasts remain positive, with global traffic projected to double by 2042, driven by economic growth and rising middle classes in emerging markets, particularly in the Asia-Pacific and Middle East regions.17 However, the industry faces persistent headwinds, including elevated travel costs, geopolitical instability, and significant constraints on new aircraft deliveries from manufacturers.17

The recovery in the European airport market has been notably uneven. Data for the first half of 2025 shows that while overall passenger traffic across Europe grew by 4.5% year-over-year, there were sharp regional disparities.19 Airports in Southern and Eastern Europe, such as those in Greece, Portugal, and Poland, have demonstrated strong growth, significantly outperforming their northern counterparts.19 German airports have been laggards in this recovery, with traffic growth of only 2.3% in H1 2025, well below the EU+ average of 4.3%.19

Competition among Europe’s major hubs is intense. In H1 2025, London Heathrow remained the busiest airport, followed by Istanbul and Paris-Charles de Gaulle.19 A critical structural shift in the European market is the increasing negotiating power of large, consolidated airline groups like Ryanair, Lufthansa Group, and IAG. These groups can leverage their scale to play airports against each other, putting pressure on aeronautical charges and other fees.21

Regulatory Environment and Sustainability Pressures

The regulatory landscape for European airports is becoming increasingly challenging. Fraport’s management has explicitly identified “excessively high regulatory costs” in Germany as a significant competitive disadvantage.24 Since the pre-pandemic period, German aviation taxes have more than doubled for short-haul flights and increased by over 70% for long-haul flights, making Germany a more expensive departure point compared to its European neighbors.26 This creates a structural headwind that may be contributing to Germany’s slower traffic recovery. The risk of Frankfurt losing traffic to more cost-competitive hubs is material, particularly as this high-cost environment could influence airline decisions on where to base aircraft and allocate future capacity. This “home market risk” poses a long-term challenge to the profitability of Fraport’s core asset and the returns on its substantial investment in Terminal 3.

Simultaneously, sustainability has become a paramount issue, driving significant infrastructure investment needs. Fraport has committed to achieving “Net Zero” for its direct emissions (Scope 1 & 2) across the entire group by 2045.2 This ambitious target necessitates substantial capital expenditure on renewable energy generation, such as large-scale photovoltaic installations, and long-term power purchase agreements for wind energy.13 Furthermore, the company is investing in the electrification of its ground vehicle fleet and preparing its infrastructure for the eventual large-scale adoption of Sustainable Aviation Fuels (SAF), which are seen as critical for the industry’s decarbonization but currently face significant cost and supply hurdles.33

3. Competitive Position Analysis

Fraport’s competitive position is defined by the premier status of its Frankfurt hub, a strategically valuable but underperforming home market, and a growing international portfolio that serves as a crucial diversification and growth engine.

Market Position Relative to European Peers

In 2022, Frankfurt Airport (FRA) was the sixth-largest airport in Europe by passenger volume.11 While it remains Europe’s undisputed leader in air cargo 9, its post-pandemic passenger recovery has lagged some key competitors. In H1 2025, major hubs like Istanbul and Rome Fiumicino posted stronger growth than Frankfurt.19 For the full year 2024, Aéroports de Paris (ADP) handled 103.4 million passengers at its Paris airports (+3.7% YoY), while Heathrow Airport welcomed a record 83.9 million passengers (+5.9% YoY).37 In comparison, FRA’s growth has been more modest.

Frankfurt’s primary competitive advantage is its unparalleled global connectivity, offering approximately 300 direct destinations, the most of any airport worldwide.8 This is complemented by its outstanding intermodal infrastructure, seamlessly integrating air travel with Germany’s high-speed rail and motorway networks, which expands its effective catchment area.2

Strategic Partnerships and International Strategy

The strategic relationship with Lufthansa Group is a cornerstone of Fraport’s competitive position. As Lufthansa’s main hub, Frankfurt benefits from a stable base of transfer and origin-destination traffic, with the airline group accounting for over 60% of the airport’s passengers.11 This deep integration fosters close operational collaboration, exemplified by a recent partnership with Lufthansa and its subsidiary zeroG to deploy an AI-based camera solution (“seer”) to optimize aircraft turnaround processes, aiming to enhance punctuality and efficiency.40 However, this heavy reliance also exposes Fraport to risks associated with Lufthansa’s corporate strategy, fleet decisions, and financial health.

Fraport’s international expansion strategy has proven to be a critical success factor, particularly in the post-pandemic era. The international segment has been the primary driver of the group’s earnings recovery, with the collective passenger volume at airports outside Germany surpassing 2019 levels in 2024, a milestone the Frankfurt hub has yet to achieve.14 The strong performance of leisure-oriented assets in Greece and the dynamic growth at the Lima hub have been instrumental.43 This outperformance of the international portfolio effectively serves as a strategic hedge against the slower growth and higher regulatory burdens of the mature German market. The international assets provide crucial exposure to faster-growing tourism markets and emerging economies, rebalancing the group’s overall risk profile away from its core domestic asset. The success of this international strategy is therefore fundamental to the investment case, making the quality and stability of these foreign concessions increasingly important drivers of value.

4. Financial Performance & Growth Analysis

Fraport’s financial performance from 2019 to 2024 reflects a dramatic cycle of pandemic-induced collapse, a robust operational recovery, and a period of intense capital investment that has suppressed cash flow and increased leverage.

Historical Performance (2019-2024)

The COVID-19 pandemic had a profound impact on Fraport’s financials. Group revenue plummeted from €3.7 billion in 2019 to a low of €1.6 billion in 2020 before staging a strong recovery, reaching €4.0 billion in 2023 and a new record of €4.4 billion in 2024.30 This rebound was driven by the combination of returning passenger volumes and increased airport charges.24

Profitability followed a similar trajectory. Group EBITDA, which turned negative in 2020, recovered to €1,204.0 million in 2023, surpassing the pre-pandemic level of €1,180.3 million from 2019.30 EBITDA further improved to €1,301.8 million in 2024.47 The Group Result (net profit) returned to positive territory in 2021 and grew to €430.5 million in 2023 and €501.9 million in 2024.30

Despite the earnings recovery, free cash flow (FCF) has remained deeply negative due to a massive capital expenditure cycle. FCF was -€741.0 million in 2022, improving slightly to -€656.4 million in 2023, before deteriorating to -€674.7 million in 2024.47 This sustained cash burn has significantly impacted the balance sheet. Total assets have swelled from €12.6 billion at year-end 2019 to €20.3 billion at year-end 2024, reflecting the scale of investment.45 Over the same period, net financial debt more than doubled, rising from €4.1 billion to €8.4 billion.45 Consequently, leverage remains high, with the Net Debt-to-EBITDA ratio standing at 6.4x at the end of both 2023 and 2024, and the shareholders’ equity ratio was 23.8% at the end of 2024.47

Metric201920202021202220232024
Revenue (€ million)3,705.81,677.62,143.33,194.44,000.54,427.0
EBITDA (€ million)1,180.3-250.6757.01,029.81,204.01,301.8
Group Result (€ million)454.3-690.491.8166.6430.5501.9
Free Cash Flow (€ million)-373.5N/AN/A-741.0-656.4-674.7
Net Financial Debt (€ million)4,147.0N/AN/A7,058.77,712.68,388.5
Shareholders’ Equity Ratio (%)33.7N/AN/A22.222.923.8
Net Debt / EBITDA3.5N/AN/A6.96.46.4
Sources: 30

Growth Trajectory

Fraport’s growth is underpinned by the ongoing recovery in passenger traffic and, more significantly, by major capacity expansion projects. At Frankfurt Airport, passenger traffic reached 59.4 million in 2023 (84% of 2019 levels) and grew to 61.6 million in 2024 (87.3% of 2019).44 The international portfolio continues to be the primary growth driver, with airports in Greece, Antalya, and Lima having already surpassed pre-pandemic traffic levels.44

The group’s growth is being fueled by a historic investment cycle:

  • Frankfurt Terminal 3: A €3.5-4.0 billion project scheduled to open in 2026, which will add initial capacity for up to 19 million passengers per year.49
  • Lima Airport: A major expansion including a new terminal and runway, set to significantly increase capacity by the end of 2024.30
  • Antalya Airport: An expansion project to double capacity, with the first phase expected to be operational by early 2025.30

This expansion has driven Group capital expenditure to €1.5 billion in 2023 and €1.85 billion in 2024.30

Metric (€ million)AviationRetail & Real EstateGround HandlingInternational Activities & Services
Revenue 20231,098.8498.8676.81,726.1
Revenue 20241,234.5536.7745.51,910.3
EBITDA 2023308.3369.9-34.0559.8
EBITDA 2024373.6374.6-39.8593.4
EBIT 2023151.8274.0-73.9350.9
EBIT 2024203.0273.3-81.9375.1
Sources: 5

5. Capital Allocation & Financial Management

Fraport’s capital allocation strategy in recent years has been dominated by its significant infrastructure investment program. The financial management focus has been on securing long-term funding for these projects while navigating the post-pandemic recovery.

Capital Expenditure and Shareholder Returns

The company’s capital expenditure has been overwhelmingly directed towards completing its large-scale expansion projects, primarily Terminal 3 in Frankfurt and the new terminal in Lima.30 Group capex peaked in 2024 at €1.85 billion and is forecast to decline materially from 2025 onwards as these projects near completion.26 This expected reduction in capex represents a critical inflection point for the company’s financial profile. The heavy investment phase has been the primary reason for the substantial negative free cash flow observed in recent years. As this spending subsides and new, revenue-generating capacity comes online, Fraport is positioned to transition from a cash-burning to a cash-generating phase. This shift is fundamental to the investment case, as it is the prerequisite for deleveraging the balance sheet and resuming shareholder returns.

In line with this capital-intensive phase, Fraport’s dividend has been suspended since the 2019 fiscal year.53 The company’s stated policy is to retain earnings to strengthen its financial position. Management has indicated an intention to reinstate the dividend in the medium term, targeting a payout ratio of 40-60% of net profit, but has made this contingent on the Net Debt-to-EBITDA ratio approaching a target of approximately 5x.30

Debt Management and Acquisition Strategy

Fraport has actively managed its liabilities to fund its expansion. As of December 2024, the group’s net financial debt stood at €8.4 billion.47 The company maintains a diversified financing portfolio consisting of corporate bonds, bank loans, and project-specific financing, with a balanced maturity schedule to manage refinancing risk.30 In 2024, Fraport demonstrated its access to capital markets by issuing a new €650 million bond while repaying another, maintaining an average cost of debt of around 3.2%.15

The company’s acquisition strategy is focused on active portfolio management to optimize for growth and risk. This is evidenced by the recent divestments from geopolitically sensitive regions (Russia) and the reinvestment into core European leisure markets through the new concession for Kalamata airport in Greece, which aligns with the “Growth & Sustainability” pillar of its “Fraport.2030” strategy.14

6. Recent Developments & Challenges (2022-2024 Focus)

The period between 2022 and 2024 has been transformative for Fraport, marked by a continued recovery from the pandemic, significant progress on major projects, and the navigation of numerous industry-wide headwinds.

Major Changes & Strategic Initiatives

The post-pandemic recovery has been a central theme, with a strategic focus on ramping up operations to meet returning demand while advancing long-term growth projects. This recovery has been characterized by the outperformance of Fraport’s international portfolio, particularly leisure-focused destinations in Greece and Turkey, relative to the more slowly recovering Frankfurt hub.30

Key strategic initiatives have centered on portfolio optimization and technological advancement. The company has actively de-risked its international portfolio by divesting its stakes in St. Petersburg (Pulkovo) and Delhi, while simultaneously securing a new long-term concession for Kalamata Airport in Greece.13 On the technology front, Fraport is increasingly leveraging digitalization and artificial intelligence to enhance operational efficiency. A notable example is the “seer” project, a partnership with Lufthansa to use AI-powered cameras to optimize aircraft turnaround times, which also serves as a strategic response to long-term labor pressures.24

Progress on flagship infrastructure projects has been substantial. Construction of Terminal 3 at Frankfurt has advanced significantly, with Pier G completed in April 2022 and Pier H in October 2024. The full terminal is on track for its scheduled opening in 2026, and the retail and food & beverage spaces have already been fully awarded to concessionaires, signaling commercial readiness.58

Industry Headwinds & Company-Specific Challenges

Fraport has not been immune to the challenges affecting the global aviation industry.

  • Labor Market: The company has faced operational disruptions from both labor shortages and strikes by various unions, which negatively impacted traffic volumes, particularly in early 2024.7
  • Inflationary Pressures: Rising costs for energy and materials have squeezed margins. Furthermore, a new public sector wage agreement in Germany is set to increase personnel expenses from the second quarter of 2025.61
  • Geopolitical Tensions: The war in Ukraine has had a direct negative impact on Fraport’s Twin Star airports in Bulgaria, which historically had significant exposure to Russian and Ukrainian tourists.60 The conflict in the Middle East has also dampened traffic to that region.26
  • Supply Chain Disruptions: Global supply chain issues in the aerospace sector have led to bottlenecks in new aircraft deliveries. This has directly affected key customers, most notably Lufthansa, constraining their capacity growth and, by extension, traffic growth at Frankfurt Airport.26

7. Future Outlook & Key Investment Considerations

Fraport’s future trajectory will be shaped by long-term aviation demand trends, the successful commissioning of its new capacity, and its ability to navigate significant economic and environmental challenges.

Long-Term Demand and Capacity Expansion

The fundamental long-term demand drivers for air travel remain intact. Global economic growth, the expansion of the middle class in emerging economies, and the continued trend of falling real ticket prices are expected to support sustained growth in passenger and cargo volumes.64

Fraport is well-positioned to capture this future growth through its substantial investments in capacity. The opening of Terminal 3 in Frankfurt in 2026 and the new terminal in Lima at the end of 2024 are the most significant near-term catalysts. These projects will not only accommodate higher traffic volumes but will also enable the modernization of older, less efficient facilities, potentially improving the passenger experience and operational performance.

Efficiency, Technology, and Sustainability

The company’s strategic focus on leveraging technology, particularly AI and digitalization, is a critical initiative for future success.24 These investments are aimed at mitigating the impact of rising labor costs, improving operational efficiency, and enhancing punctuality—a key competitive factor for a major international hub.

Sustainability will be a defining theme for the next two decades. The commitment to achieve “Net Zero” direct emissions by 2045 requires a profound transformation of the company’s infrastructure and operations.28 This entails significant investment but also presents an opportunity to align with evolving regulatory requirements and stakeholder expectations. The high cost and limited availability of Sustainable Aviation Fuel (SAF) remain major industry-wide hurdles, but airports like Fraport will play a crucial role in developing the necessary infrastructure to support its adoption.34

Economic Sensitivity and Evolving Travel Patterns

Despite the positive long-term outlook, Fraport’s business remains highly sensitive to economic cycles. A global recession would likely lead to a sharp decline in passenger and cargo traffic, as well as a reduction in high-margin retail spending per passenger.4 A key uncertainty is the long-term trajectory of business travel, which has recovered more slowly than leisure travel post-pandemic and may face structural headwinds from the increased adoption of digital communication technologies.67

8. Valuation Context

Fraport’s valuation reflects a balance between its high-quality, long-life infrastructure assets and the significant financial leverage and market-specific challenges it currently faces. A comprehensive valuation should consider intrinsic, relative, and asset-based methodologies.

Current Valuation Multiples

As of early 2025, Fraport trades at a notable discount to its historical multiples and to some of its direct European peers.

  • Price-to-Earnings (P/E) Ratio: The company’s P/E ratio stands at approximately 12.0x to 14.3x based on 2024 earnings.68 This is considerably lower than its 5-year historical average of around 15.8x and below the peer group median, which ranges from approximately 17.0x to 27.4x.70
  • Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: The EV/EBITDA multiple is approximately 11.9x to 12.2x.72 This is more in line with its recent history but slightly above the median for the broader transportation services industry.72

Relevant Valuation Methodologies

For an asset-intensive business like Fraport, several valuation approaches are pertinent:

  • Discounted Cash Flow (DCF): This is widely considered the most appropriate method for determining the intrinsic value of an airport operator, as it captures the long-term cash generation potential of its concessions.74 For Fraport, a DCF analysis is highly sensitive to assumptions regarding the timing of its free cash flow inflection point (expected post-2025), long-term traffic growth rates, and the future regulatory framework for airport charges.
  • Peer Group Analysis: Comparing EV/EBITDA multiples with other listed European airport operators such as Aéroports de Paris, Flughafen Zürich, and Vienna Airport provides a relative valuation benchmark.70 Fraport’s valuation discount relative to certain peers may be attributed to its higher financial leverage, the structural unprofitability of its Ground Handling segment, and the slower recovery and higher regulatory costs in its German home market.
  • Asset-Based Valuation: Given that physical properties can constitute up to 90% of an airport company’s total assets, an asset-based approach provides a useful, albeit complex, valuation floor.75 This method considers the replacement value or market value of the underlying infrastructure.

9. Key Risk Factors & Scenario Analysis

An investment in Fraport AG is subject to a range of operational, regulatory, economic, and structural risks that could materially impact its financial performance and valuation.

  • Operational Risks: The complex nature of airport operations exposes the company to significant disruption risk. This includes technical failures in critical systems (such as air traffic control or baggage handling), security breaches, labor-related disruptions including strikes, and adverse weather events that can lead to widespread flight cancellations and significant short-term financial losses.77
  • Regulatory and Political Risks: Fraport is highly exposed to regulatory risk, particularly in its home market. Unfavorable changes to the regulated airport charge framework in Germany could directly impact the profitability of the Frankfurt hub. The persistent threat of new or increased aviation and environmental taxes remains a key concern.80 Furthermore, its extensive international portfolio exposes the company to political and economic instability in the countries where it operates concessions.
  • Economic Sensitivity and Demand Cyclicality: Demand for air travel is closely tied to the health of the global economy. An economic downturn would negatively affect both passenger volumes and cargo demand, impacting aeronautical and non-aeronautical revenues alike.4 The company’s significant exposure to business and transfer traffic makes it particularly vulnerable to shifts in corporate travel budgets.
  • Competition and Market Dynamics: Fraport faces intense competition from other major European hubs, such as Paris, Amsterdam, and Istanbul, for lucrative transfer passenger flows. A sustained cost disadvantage in the German market could lead to an erosion of market share over the long term as airlines reallocate capacity to more profitable hubs.21
  • Long-Term Structural Changes: The post-pandemic landscape has accelerated discussions around potential long-term shifts in travel behavior. A permanent reduction in corporate travel due to the widespread adoption of virtual communication platforms would pose a structural threat to one of the most profitable passenger segments. Similarly, a modal shift from air to high-speed rail for short-haul travel in Europe could impact feeder traffic volumes into the Frankfurt hub.67
  • Project Execution Risk: The successful, on-time, and on-budget completion of the Terminal 3 project is paramount to the company’s medium-term financial strategy. Any significant delays or cost overruns would postpone the anticipated shift to positive free cash flow, delay the deleveraging process, and likely have a negative impact on investor sentiment.

Works cited

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