Credit Suisse Downgrades B/E Aerospace Ahead Of Rockwell Collins Acquisition

Despite the increasing wide-body OE pressure in the medium term, Credit Suisse’s Robert Spingarn expressed optimism regarding the long-term business prospects for B/E Aerospace Inc BEAV. Spingarn added that the company is a good strategic fit for Rockwell Collins, Inc. COL.

Spingarn downgraded the rating on B/E Aerospace from Outperform to Neutral, while raising the price target from $58 to $62.

Strong Execution

“Execution has been solid and BEAV is nearing the conclusion of a product development cycle which should drive improved FCF conversion of ~100 percent next year and beyond,” the analyst mentioned.

Spingarn also sees the company as a solid proxy vehicle for long-term air travel, which is among the more attractive growth markets among Industrials.

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B/E Aerospace recently addressed major issues associated with the OE cycle, with management noting that the expansion of the company’s installed fleet would begin to shift the mix from “60/40 OE/aftermarket” to the opposite through the next few years.

Positive Expectations

“We also agree with BEAV's (and COL's) assessment that retrofit activity is somewhat decoupled from the OE cycle, which could mitigate some of the impact should OE begin to deteriorate beyond the anticipated next 777 cut,” the analyst stated.

he analyst also pointed out that while the market appeared skeptical regarding the Rockwell Collins deals being completed, it was likely to be completed successfully.

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