RBC Capital Initiates Coverage On Several Aerospace & Defense Companies

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  • RBC Capital analyst Ken Herbert initiated coverage on several Aerospace & Defense companies.
  • Boeing Co BA initiated with an Outperform rating and a price target of $275, implying an upside of 27%.
  • The analyst sees the shares being at an "attractive entry point from a cyclical perspective." An expected 2022-2023 inventory draw-down will provide positive free cash flow momentum, says Herbert, who sees normalized FCF at about $15 per share.
  • AAR Corp. AIR initiated with an Outperform rating and a price target of $45, implying an upside of 30%. Herbert sees the company being poised to benefit from the recovery in the commercial aerospace aftermarket and believes that continued execution improvement will support positive investor sentiment. 
  • Ducommun Inc DCO was initiated with an Outperform rating and a price target of $62, implying an upside of 26%. The analyst says the company is well-positioned for further margin expansion as volumes improve in the commercial aerospace market, with the commercial aerospace ramp expected in 2022-2025 likely to offset slower defense growth. 
  • Kratos Defense & Security Solutions, Inc KTOS initiated with an Outperform rating and a price target of $28, implying an upside of 22%, calling the stock a "core small-cap holding for exposure to the U.S. defense market."
  • Hexcel Corp HXL initiated with a Sector Perform rating and a price target of $65, implying an upside of 12%. The analyst is optimistic on the expected 2022 growth from commercial aero but also warns that a slower ramp on the A350 and 787 will be a headwind for the sentiment.
  • Mercury Systems Inc MRCY initiated with a Sector Perform rating and a price target of $55, implying an upside of 3%. The analyst states that investors are taking a cautious approach to modeling a return to the high-single-digit organic growth outlook for the company, and the recent deceleration in its growth and strategic re-focus justify patience. 
  • AeroVironment, Inc. AVAV initiated with a Sector Perform rating and a price target of $95, implying an upside of 3%. Herbert says that while concerns with the change in competitive landscape and defense budget are overdone, he also sees flat margins for FY22-23 and fewer top-line upside opportunities. 
  • Heico Corp HEI initiated with a Sector Perform rating and a price target of $145, implying an upside of 3%. 
  • The analyst states the company is well-positioned for above-industry secular growth post-crisis in its aviation business, with potential catalysts coming from its M&A activity, but its margin profile is "well understood" by investors while its current multiple already reflects its near term upside.
  • VSE Corp VSEC initiated with an Outperform rating and a price target of $60, implying an upside of 22%. 
  • The analyst says while recent contract wins and acquisitions will support strong growth in the Aviation segment, VSE's exposure to business jets also gives it "diversification and upside."
  • TransDigm Group Inc TDG initiated with an Outperform rating and a price target of $700, implying an upside of 7%. The analyst, who forecasts TransDigm will see about 20% growth in its commercial aftermarket business in FY22, contends that the stock offers investors exposure to the commercial aftermarket recovery with "significant margin expansion and capital allocation optionality."
  • Spirit AeroSystems Holdings, Inc. SPR initiated with an Outperform rating and a price target of $62, implying an upside of 41%.
  • Herbert mentions the stock represents an attractive way to recover in commercial aerospace, with potential upside coming from its outlook for 2022 free cash flows.
  • Price Action: BA shares are trading higher by 0.07% at $214.5 on the last check Friday.
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