Embattled Boeing supplier Spirit AeroSystems Holdings caught an upgrade. It isn’t a bullish call, but there is one compelling thing about its shares that investors should consider.
On Wednesday, Morgan Stanley analyst Kristine Liwag upgraded shares of Spirit Aero to Hold from Sell. She raised her price target to $35 a share from $22.
It isn’t a Buy, but any upgrade is a relief for Spirit Aero investors. Things have been incredibly difficult for the fuselage supplier in recent years. Shares are down about 65% from April 2019, just after the Boeing 737 MAX was grounded worldwide following two deadly crashes.
After the MAX grounding came Covid-19, which reduced demand for air travel.
Spirit Aero has used more than $1 billion since the MAX grounding just to keep its business afloat. Free cash flow is expected to return in 2024.
That and improving demand for air travel prompted the ratings change. Things are, essentially, as bad as they will get, Liwag wrote. She rates Boeing stock Hold too. Her price target for the latter’s shares is $255.
No more bad news is good news, but Wall Street isn’t exactly in love with Spirit Aero stock. About 45% of analysts covering the company rate its shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
Sentiment is improving, though. Only 30% of analysts rated Spirit Aero shares Buy in September. That’s one positive for the stock. Another is its relative value versus Boeing.
Boeing and Spirit Aero are tied at the hip. Spirit generates about two-thirds of its annual sales from Boeing. That’s one reason why Boeing helped out its supply by renegotiating some contracts in October.
Spirit stock is trading at 12% of Boeing’s stock price. That’s down from about 25% when the MAX was grounded. The average ratio since then is almost 20% — and 20% of Boeing is a $52 share price for Spirit Aero.
Spirit shares were up 2%, at $31.34, in recent trading. The S&P 500 and the Dow Jones Industrial Average were up 0.1%.
Boeing stock was up 0.1%, at $263.76. Through midday trading, Boeing shares were up more than 20% over the past month. Spirit Aero shares are up more than 20% over that span too.
Those gains show investors are feeling better about commercial aerospace, just like Wall Street’s Spirit Aero ratings do.