Spirit AeroSystems saw a 23% increase in stock price to $21.16 on October 18th following an agreement with Boeing.
Spirit’s return to profitability depends on improving operations and relationships with Boeing and Airbus, as well as finding a new CEO.
The consensus EPS estimate for next year is positive.
There are 5 stocks that are considered better investments than Spirit AeroSystems.
Spirit AeroSystems Holdings, Inc. (NYSE: SPR), a plane parts manufacturer based in Kansas, has faced challenges due to the Russia-Ukraine conflict, decreased orders, labor costs, and supply chain issues. The company is expected to experience a wider net loss in 2023 and is on track for a second consecutive annual decline.
Fortunately, there is hope for shareholders.
After announcing an agreement with key customer Boeing, Spirit AeroSystems experienced a significant boost. The collaboration aims to address supply chain inefficiency and recent quality problems with Boeing 737 fuselages. This partnership demonstrates Boeing’s willingness not only to work with its struggling supplier but also to increase orders.
The agreement also provides Spirit AeroSystems with much-needed financial support. Boeing will provide an immediate $100 million payment for the tooling required for 737 and 787 production increases. Spirit is projected to earn an additional $455 million in revenue by 2025, although there will be a revenue decrease of $265 million from 2026 to 2033.
In addition to improved financial stability, Spirit may also benefit from a similar agreement with Airbus, a rival of Boeing and another customer of Spirit.
The news caused Spirit’s stock to rise by 23% to $21.16 on October 18th, indicating a positive trend for the mid-cap company. Trading volume reached a record 31.7 million shares, more than seven times the usual amount. This increase in volume may suggest smoother sailing ahead.
What is the Growth Outlook for Spirit AeroSystems?
One positive aspect for Spirit prior to the Boeing agreement is diversified top-line growth. The commercial business, as well as the defense and aftermarket segments, all experienced revenue growth in Q2. However, only the two smaller segments were profitable. The commercial growth was repeatedly hindered by a union work stoppage, excess capacity costs, and revenue adjustments for a potential customer claim. Spirit’s return to profitability relies on operational improvement and stronger relationships with Boeing and Airbus. If the company can maintain revenue growth while reducing costs, better quarterly reports are expected. Furthermore, reducing the $3.9 billion debt balance and associated interest expense will be crucial.
The turnaround effort will likely be led by a new leadership team. Patrick Shanahan was appointed as the Interim President & CEO after Thomas Gentile left. The search for a permanent CEO is ongoing, adding to the stock’s risk level due to leadership uncertainty.
Mr. Shanahan will host his first earnings call on November 1st when the company releases its Q3 financial results. Analysts predict a 17% year-over-year increase in revenue and a net loss of $1.35 per share, both of which would be improvements from Q2.
How Did Wall Street React to the Spirit-Boeing News?
The agreement between Spirit and Boeing received mixed reviews. TD Cowen suggested that the short-term financial gains are offset by long-term execution risks and the cash flow reversal expected in 2026. Truist expressed caution in the near term but had a favorable long-term view of the industry’s demand, pricing, and equipment shortage dynamics.
Deutsche Bank, on the other hand, considers the Boeing collaboration to be a clear positive. The firm upgraded Spirit from a hold to a buy and set a price target of $30.00. J.P. Morgan maintained its bullish stance, citing the CEO transition and future growth prospects, along with the Boeing news.
With Boeing taking a more hands-on approach to resolving supplier issues, Spirit now has the support it needed. If the collaboration succeeds, it could benefit both companies and restore credibility to the aircraft manufacturing industry.
Before considering Spirit AeroSystems, it’s important to note that it currently has a “Hold” rating among analysts. However, there are five other stocks that are considered better investments.
