Sterne Agee CRT Defends Boeing And Spirit AeroSystems On 'Refreshed' Forecasts

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  • Boeing Co BA shares have lost 20 percent since November 3, while shares of Spirit AeroSystems Holdings, Inc. SPR are down 24 percent.
  • Sterne Agee CRT’s Peter Arment maintained Buy ratings for both companies, with a price target of $196 for Boeing and of $66 for Spirit AeroSystems.
  • Shares of Boeing and Spirit AeroSystems are currently oversold and the sell-offs are buying opportunities, Arment stated.

“We have refreshed our commercial aircraft forecast post the adjustments to BA's 2016 guidance, which reflects slightly lower deliveries in 2016 but higher production during the 2017-2020 period,” analyst Peter Arment wrote.

Boeing call last week indicated that 737 demand continued to be very robust and the transition to 737-MAX “has been misinterpreted by the Street,” Arment commented. Boeing maintained a production rate of 42 aircraft per month for 737 during 2014 and 2015. This year is seeing a similar rate, albeit with 12 less deliveries.

“The 12 less deliveries reflect the supply chain delivering 737-MAX components to build the remaining flight test aircraft and 5/6 aircraft to aid BA in proving out the production system on the new line,” the analyst mentioned, while adding that this is not a transition issue from the 737NG to the 737-MAX.

The supply chain is likely to ramp up to 47 aircraft per month in early 2017, with Boeing being on schedule to deliver the first 737-MAX mid-2017. Arment believes that the Street has “overblown the transition topic,” which impacts both Boeing and Spirit AeroSystems.

The industry’s narrow-body deliveries are expected to grow by 31 percent from ~1004 aircraft in 2015 to ~1320 aircraft in 2020. The Sterne Agee CRT report noted, “With Airbus targeting 60+ aircraft per month in 2019 and BA targeting 57 per month in 2019, the total narrow-body monthly production will expand from today's 86 per month to over 115 per month in 2020.”

The analyst believes that both Boeing and Spirit AeroSystems are currently oversold, and advises short- and long-term oriented investors to “take advantage of this weakness,” especially with Spirit AeroSystems scheduled to report on February 3.

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasPeter ArmentSterne Agee CRT
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