Citi analysts initiated research coverage on Spirit AeroSystems (NYSE:SPR) stock with a Buy rating, citing its “positive view on the aerospace cycle given large backlogs at the major OEMs” and “improved earnings visibility given a recent contract modification with Boeing (NYSE:BA) and the potential for a similar modification with Airbus.”
Analysts also voiced their bullishness on the aerostructure manufacturer’s “improving cash flow visibility as the company more wholesomely increases production rates to meet customer schedules,” as well as a “de-risked balance sheet after recent financing activities.”
Moreover, Citi also noted a potential valuation scenario that envisions the company's stock price surpassing $50 over time, provided the company makes progress towards its previously communicated long-term targets and its valuation aligns closely with industry peers.
Analysts set a price target of $39 on SPR, implying a 50% upside from Tuesday’s closing price of $26.01. The stock is down 1% in pre-market Wednesday trade.
Citi’s bullish call on Spirit AeroSystems comes as the company grapples with quality issues and legal challenges in the wake of the recent Alaska Airlines incident involving Boeing’s (BA) 737 Max 9.
Notably, Spirit shareholders filed a lawsuit against the contract manufacturer in December saying “defendants concealed from investors that Spirit suffered from widespread and sustained quality failures,” a court document dated Dec. 19 noted.
These shortcomings encompassed issues such as the presence of debris in Spirit products, the absence of fasteners, paint peeling, and subpar skin quality.
Meanwhile, SPR was also initiated at Sector Weight at KeyBanc on Tuesday.
“We see a favorable macro backdrop within A&D for both OEM and MRO players driven by the aging/growing fleet, global air travel recovery, and easing supply constraints.”
Analysts added they “see SPR’s valuation as fair/full amid near-term quality issues.”