Why This Spirit AeroSystems Analyst Made A Double Downgrade

Spirit AeroSystems Holdings, Inc. (NYSE: SPR) subsidiary, Spirit AeroSystems Inc, raised $900 million in a debt offering.

Although the company is trying its best to diversify away from Boeing Co (NYSE: BA), it remains “mostly a 737 story,” according to BofA Securities.

The Spirit AeroSystems Analyst: Ronald Epstein upgraded the rating for Spirit AeroSystems from Buy to Underperform, while reducing the price target from $49 to $26.

The Spirit AeroSystems Thesis: Although the production of 737 could ramp from the current 31 per month to 50 per month by the mid-2020s, Boeing’s “strengthened focus on its own balance sheet and FCF generation adds pressure to SPR profitability,” Epstein said in the upgrade note.

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The analyst mentioned that Spirit AeroSystems could generate free cash flows at 5% of sales by mid-2020s, “short of 7-9% conversion target.” He added, however, that the path to a cash flow turnaround is now more challenging and that restructuring the supply chain “could be difficult and risky.”

SPR Price Action: Shares of Spirit AeroSystems had declined by 2.45% to $28.64 Friday morning.

Also Read: Boeing Hosted Its First Investor Day In 4 Years After 737 MAX Debacle: What Do Analysts Think?

Photo: T. Schneider via Shutterstock