Spirit AeroSystems BUY

SPR : NYSE : US$31.64
Target: US$38.00

Spirit AeroSystems is a leading tier-1 supplier of aircraft
fuselage, propulsion, and wing systems for commercial
and military aircraft programs. Based in Wichita, Kansas,
Spirit AeroSystems was spun out of Boeing in 2005, and
today is the largest non-OEM supplier of commercial
aircraft structures.
All amounts in US$ unless otherwise noted.

  Transportation and Industrials — Airlines and Aerospace

Investment recommendationT
We are upgrading our recommendation on SPR to BUY and increasing
our price target to $38.

Our confidence in the successful sale of the Tulsa operations is increased,
and we increasingly believe new management is taking the necessary
steps to de-risk the operations and improve cash flows and program
execution. Granted there is still substantial risk associated with the
A350, contract negotiations with Boeing, and the Tulsa sale. However,
we believe the risk/reward is favorable and our confidence in
management’s strategic direction is increased
Investment highlights
 We believe the sale of the Tulsa facility will be a positive catalyst.
While Tulsa contributes ~$70M in EBITDA, it is a significant use of
cash ($210M) and a major distraction for management.
 We do expect additional charges on the A350, which won’t be a
surprise, but we believe continued improvement in execution and
reductions in the fixed cost structure will provide material tailwinds
to cash and margins in 2014.
We are increasing our price target to $38, which is based on the average
of a 13.0x PE multiple and a 7.5x EBITDA multiple, applied to our 2014
estimates. A discount to the sector is appropriate considering the risks,
but we believe the multiple will improve as cash flow improves.


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