Spirit AeroSystems

SPR : NYSE : US$32.69

BUY 
Target: US$36.00

COMPANY DESCRIPTION:
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
2014 OFF TO A SOLID START;
GUIDANCE SEEMS CONSERVATIVE,
A350 KEY RISK
Investment recommendation
SPR posted a relatively clean Q1/14, with core EPS of $0.85 ($1.07 after
tax benefit and debt charge). Sales growth was an impressive 20% (13%
before benefit of four additional days in the quarter). Core operating
margins increased to 14.8%, led by Propulsion segment. While FCF
guidance increase reflects reduced 787 advance reimbursement, the lack
of any change to full year EPS guidance is a slight concern. The A350
appears to be the primary risk, but program schedule is encouraging. We
are maintaining our BUY rating, increasing our price target to $36.
Investment highlights
 We are raising our 2014 and 2015 EPS estimates to $2.82 and $3.02,
respectively. Moreover, we raised our FCF estimate to just over
$200M, in line with guidance. However, the relatively strong Q1/14
has increased our confidence in the 2014 opportunity and given
greater visibility on a $3.00 2015 EPS estimate, a key milestone for
the company.
 We had expected to hear about further progress on the Tulsa
divestiture by this time. While the company indicates it is still
committed to the sale, either interest levels are not where the
company expected, or the desire to unload the operations is not as
urgent as it was six months ago. We still believe this can be a positive
catalyst, but the impact seems lower. Note that Tulsa is included in
the 2014 guidance.
Valuation
We are increasing our price target to $36, based on the average of a 11.0x
EPS multiple and a 7.0x EBITDA multiple, applied to our 2015 forecast.

 

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