Boeing Co BA and Spirit AeroSystems Holdings, Inc. SPR landed upgrades on Wall Street Monday, with a coronavirus vaccine in sight.
The Analyst: UBS analyst Myles Walton upgraded Boeing from Neutral to Buy and doubled the price target from $150 to $300. Walton upgraded Spirit from Neutral to Buy and raised the price target from $19 to $50.
The Thesis: Expectations for a highly effective coronavirus vaccine have catalyzed the beginning of an aerospace upcycle, and Boeing has historically performed extremely well during that early cycle period, Walton said in the upgrade note.
“With history as a guide, even after the last few week's move, BA is following the same path out of the market bottom as it did in '09, yet unlike '09 it has only recovered ~70% of its 3mo pre-market bottom or about half prior recoveries,” the analyst said.
Walton is anticipating a further relaxing of global air travel restrictions, and said 737 Max recertification in China will help unlock additional valuation upside for Boeing in the near-term.
UBS is projecting a return to $4.99 in EPS for Boeing by 2022.
For Spirit, Walton said the Boeing 737 accounted for half of the company’s 2018 revenue and 90% of its earnings.
The return of the 737 Max will be great news for the airline supplier's business, the analyst said.
“Under an assumption that production will return to 50/mo by the middle of the decade, we see SPR earnings trending back above $4/sh (with an eye towards $5/sh in 2025E).”
Benzinga’s Take: Shares of Boeing and Spirit are up 40.8% and 87.5% in the last three months, respectively, and some investors may be a bit hesitant to buy in after such a large rally.
Yet assuming EPS for the two companies will eventually return to near-historical norms, Boeing remains down 25.9% overall year-to-date, while Spirit shares are still down 45.2% in 2020.
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