Spirit AeroSystems (NYSE:SPR) on Wednesday was upgraded to Buy from prior investment rating of Neutral by analysts at Benchmark. They said shares in the supplier of airplane parts for companies including Boeing (BA) and Airbus (OTCPK:EADSF) (OTCPK:EADSY) is attractively valued after a recent selloff and has a growing backlog of orders.
“Spirit (SPR) is often thought of as the more Boeing (BA) way to play Boeing (BA),” Josh Sullivan, analyst at Benchmark, said in an April 19 report. “With growing backlog visibility spurred by recent mega airline orders coupled with what we believe was an over-reaction to Spirit’s (SPR) ‘non-standard’ installation announcement, we believe now is the time to play Spirit (SPR).”
Spirit’s (SPR) stock on Friday lost more than a fifth of its value after the company revealed it had notified Boeing (BA) of a problem with the way some models of the 737 jetliner were built. As a result, Boeing (BA) published a statement saying a supplier had notified the company of a “non-standard manufacturing process” for two fittings at the rear of some plans, and that it was pausing deliveries to replace the parts.
Boeing (BA) management on Tuesday said the company is sticking with its plan to increase output of the best-selling 737 Max. The goal is to make 38 of the planes a month by this summer.
This plan will benefit Spirit (SPR) as airlines seek to upgrade or expand their fleets amid a strong rebound in air travel, Benchmark said. United Airlines, Air India and Ryanair are among the carriers that have announced plans to buy hundreds of new planes or are currently negotiating prices.
“Airlines are clamoring for new aircraft as existing fleet capacity struggles to meet demand (maintenance, repair and overhauls visits at two times normal stays),” according to the report. “Mega aircraft orders (United, Air India, Ryanair) are likely to continue as airlines lock in dwindling slots, and Spirit (SPR) has the infrastructure to ramp in place.”
Benchmark’s price target for Spirit (SPR) of $45 is based on a price-to-earnings multiple of 25 times estimated EPS for 2024 and 2025.