Bank of America Downgrades Wesco Aircraft Holdings

Bank of America downgraded Wesco Aircraft Holdings, Inc WAIR from Buy to Underperform Monday and set a $26 price target after missing Q4 estimates.

Analyst Ronald J. Epstein derived the $26 price target “using a 17x one-year forward P/E multiple on CY15E earnings.”

“Our multiple is based on a weighted average mix of defense and commercial aerospace. We believe WAIR should trade at a slight premium to pure defense names and pure commercial aerospace names (at 13x and 15x, respectively) given its strategy and the company's positioning, which should benefit from an expanding commercial aerospace cycle,” according to Epstein.

The analyst note saw that “risks to the downside could come from an economic slowdown that would likely lower OEM production rates, higher oil prices that would likely derail air traffic growth and, therefore, aircraft demand, fewer ad hoc sales that would compress margins, and deeper cuts to the DoD budget than currently anticipated, which could impact key programs, such as the F-35.”

Epstein conclude that “if the commercial aerospace production ramp is more robust than we anticipate and/or the cuts to the DoD budget less severe than we anticipate, earnings could fare better than our projections and the stock could perform better. If margins fare better than we are forecasting, there could also be upside to our valuation.”

Wesco Aircraft Holdings, Inc recent;y traded at $14.45, up 3.36 percent.