Spirit AeroSystems Holdings: An Upgrade and a Glimmer of Hope

Spirit AeroSystems Holdings, a beleaguered supplier for Boeing, recently received an upgrade from Morgan Stanley analyst Kristine Liwag. While the upgrade is not necessarily a bullish call, there is an aspect of the company’s shares that should catch the attention of investors.

Liwag raised her rating on Spirit Aero to Hold from Sell and bumped up the price target to $35 per share from $22. While it may not be a Buy recommendation, this upgrade provides some relief for Spirit Aero investors. The past few years have been incredibly challenging for the fuselage supplier, with the grounding of the Boeing 737 MAX following two fatal crashes resulting in a significant decline of about 65% in its share price since April 2019.

To add to its woes, the company also had to weather the storm of Covid-19, which led to a decrease in demand for air travel. The aftermath of the MAX grounding forced Spirit Aero to utilize over $1 billion just to stay afloat. However, there is a glimmer of hope on the horizon, as free cash flow is expected to make a comeback in 2024.

This positive outlook, coupled with growing demand for air travel, prompted Liwag to change her ratings. According to her assessment, the current situation is as bad as it will get. It is worth noting that Liwag also rates Boeing stock as a Hold, with a price target of $255 per share.

Although any absence of bad news can be seen as good news, it seems that Wall Street is not wholeheartedly enamored with Spirit Aero stock. Approximately 45% of analysts covering the company have given its shares a Buy rating. Comparatively, the average Buy-rating ratio for stocks in the S&P 500 stands at around 55%.

Sentiment Improving for Spirit Aero

Sentiment toward Spirit Aero is on the rise, with only 30% of analysts rating their shares as Buy in September. However, there are several positive factors to consider when evaluating the stock.

Relative Value versus Boeing

Boeing and Spirit Aero are closely linked, with Spirit generating approximately two-thirds of its annual sales from Boeing. In October, Boeing renegotiated some contracts, providing support to its supply chain.

Currently, Spirit’s stock trades at 12% of Boeing’s stock price, representing a significant decrease from about 25% during the grounding of the MAX. The average ratio for Spirit’s stock price to Boeing’s is about 20%, implying a potential share price of $52 for Spirit Aero.

Recent Performance

In recent trading, Spirit shares saw a 2% increase, reaching $31.34. Similarly, the S&P 500 and the Dow Jones Industrial Average experienced a 0.1% uptick.

Boeing’s stock also saw a 0.1% increase, reaching $263.76. Over the past month, Boeing’s shares have surged by more than 20%, a trend mirrored by Spirit Aero.

These positive gains reflect growing investor confidence in the commercial aerospace industry, in line with Wall Street’s positive ratings for Spirit Aero.