On Friday, Deutsche Bank (ETR:DBKGn) adjusted its stance on Spirit AeroSystems (NYSE:SPR), moving its rating from Buy to Hold. The new price target set by the firm is $37.25, a slight uptick from the previous target of $37.00. The decision comes in light of the imminent acquisition of the company by Boeing (NYSE:BA), which caps the potential growth in Spirit's share value to around 8% at the agreed acquisition price.
The downgrade reflects revised earnings per share (EPS) estimates for the years 2024 through 2026, which are now expected to be negative $4.23, positive $0.59, and $1.20 respectively. These figures are a step down from the previously estimated EPS of $1.56, $2.47, and $3.16. The adjustments take into account the first quarter results, a decrease in the number of 737 deliveries, and the exclusion of an anticipated pricing benefit from Airbus.
Despite the downgrade, Deutsche Bank's valuation of Spirit AeroSystems remains tied to the acquisition price of $37.25 per share, which was the figure agreed upon with Boeing. Until the acquisition is finalized, the firm will continue to model Spirit AeroSystems as an independent entity, including its Airbus-related assets.
The report also outlines potential risks and benefits that could affect the stock's performance. Risks include the possibility of the Boeing deal falling through, regulatory challenges, and Boeing's financial results being poorer than expected. On the flip side, an improved bid from Boeing, a higher offer from a different party, or a significant rise in Boeing's share price could provide upside opportunities for Spirit AeroSystems shares.
In other recent news, Spirit AeroSystems is set to be acquired by Boeing in an all-stock deal valued at $4.7 billion. The acquisition, expected to be finalized by mid-2025, sees Spirit AeroSystems shareholders receiving $37.25 per share in Boeing stock. Amid this development, Baird, Wolfe Research, and JPMorgan (NYSE:JPM) have all downgraded Spirit AeroSystems' stock, although Baird and JPMorgan have raised their price targets to align with the acquisition price.
In parallel, Airbus plans to acquire certain underperforming operations from Spirit AeroSystems, marking significant shifts within the aerospace industry. Notably, Deutsche Bank and TD (TSX:TD) Cowen have maintained their 'Buy' ratings on Boeing's stock, citing potential productivity enhancements from the proposed acquisition.
InvestingPro Insights
In light of the recent downgrade by Deutsche Bank, it's important to consider current financial data from InvestingPro for a comprehensive view of Spirit AeroSystems (NYSE:SPR). With a market capitalization of $4.02 billion and revenue growth of 19.54% over the last twelve months as of Q1 2024, Spirit shows a robust top-line expansion. However, the company's significant debt burden and difficulties in generating gross profit, as evidenced by a gross profit margin of -3.62%, highlight underlying challenges. Additionally, the stock has experienced a notable price appreciation, with a 26.8% return over the last six months, aligning with Deutsche Bank's observation of limited upside potential due to the acquisition cap.
InvestingPro Tips suggest that Spirit's financial performance is marked by volatility, with analysts not expecting profitability this year and a negative free cash flow yield implied by its valuation. These insights, coupled with the fact that Spirit does not pay dividends, may influence investment decisions, particularly in the context of the upcoming acquisition by Boeing. For those looking to delve deeper into the financials and future outlook of Spirit AeroSystems, additional tips are available on InvestingPro. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to a total of 12 InvestingPro Tips that could further inform your investment strategy.
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