Spirit AeroSystems Analyst Sees Benefits From Return of Boeing's 737 MAX

The bullish case for Spirit AeroSystems Holdings (NYSE: SPR) is based on a more favorable outlook for Boeing Co's (NYSE: BA) 737 MAX plane, according to Cowen.

The Spirit AeroSystems Analyst: Cai von Rumohr upgraded Spirit AeroSystems from Market Perform to Outperform with a price target lifted from $21 to $28.

The Spirit AeroSystems Thesis: Expectations for a 737 return to service bodes well for Spirit, as Boeing is Spirit's largest and most profitable contract, von Rumohr said in a Wednesday upgrade note.

As it stands now, Spirit is building equipment for the MAX at a trough rate of seven per month, and this should ramp "sharply" in 2021 and 2022, the analyst said — even if Boeing fails to hit its 2022 target of producing 31 planes per month.

Spirit is considered a "leveraged play" on the MAX RTS, as it accounted for 50% of sales in 2018 and has a $2-billion market cap versus Boeing's $87-billion market cap, he said. 

Related Link: Boeing 737 Max Cleared For Takeoff After 19-Month Grounding, European Regulator Says

Spirit managed to rework a deal to buy Bombardier's aerostructures unit, and this is also considered a catalyst for Spirit's stock, von Rumohr said.

Bombardier brings wing technology and low-cost manufacturing facilities in Mexico and Morocco, and represents a "good business fit," the analyst said. 

The combination of a revised price tag of $865 million, the terminated Asco deal and Spirit's $900-million debt raise imply an "enhanced liquidity" position, the analyst wrote. This could help the company achieve a positive free cash flow in 2022 although 2023 would be a "breakout cash year" with free cash flow rising to $375 million, or $3.50 a share.

SPR Price Action: Shares of Spirit AeroSystems were down 0.3% at $19.79 at last check Wednesday.