On Monday, JPMorgan (NYSE:JPM) adjusted its perspective on Spirit AeroSystems (NYSE:SPR), downgrading the stock from Overweight to Neutral. Accompanying the downgrade, the firm raised its price target slightly to $37 from the previous $36.
This shift in rating follows a period of underperformance by Boeing (NYSE:BA) shares, which have fallen 29% year-to-date, contrasted with an 18% increase in the broader market.
The analyst at JPMorgan pointed to the second half of the year as a pivotal time for Boeing, as the company aims to recover from operational challenges faced in the first half.
The firm remains optimistic about Boeing's long-term prospects, citing strong product demand and its position in a global duopoly. However, it noted that Boeing's progress in the latter half of the year would largely hinge on its operational performance, including delivery rates and cash flow expectations.
Several key developments are anticipated in the second half of the year that could impact Boeing. These include the potential resolution of a fraud lawsuit, the expiration of a major labor contract in September, and the appointment of a new CEO before the end of the year.
The recent announcement that Boeing will acquire a significant portion of Spirit AeroSystems is seen as a positive move to bolster Boeing's operations, although it is not expected to provide immediate financial benefits.
The upgrade in the price target to $37 aligns with the acquisition price announced last week. Despite this, JPMorgan's downgrade to Neutral reflects a more cautious stance on Spirit AeroSystems in the short term. The analyst underscored the importance of Boeing's upcoming operational milestones and their potential influence on the company's financial trajectory.
In other recent news, Boeing is set to acquire Spirit AeroSystems in an all-stock transaction valued at $4.7 billion, aiming to address ongoing quality issues with its 737 MAX aircraft.
Concurrently, Airbus is also planning to acquire certain loss-making operations from Spirit AeroSystems, including facilities in the United States, Northern Ireland, France, and Morocco. These acquisitions are part of significant recent developments in the aerospace sector.
Financial research firm CFRA has raised the price target for Spirit AeroSystems shares to $37, maintaining a Hold rating on the stock, reflecting the ongoing terms of the acquisition agreement with Boeing.
Meanwhile, Deutsche Bank (ETR:DBKGn) and TD (TSX:TD) Cowen have maintained their 'Buy' ratings on Boeing's stock, citing potential productivity enhancements from Boeing's proposed acquisition of Spirit AeroSystems.
Spirit AeroSystems' CEO, Patrick Shanahan, is among the frontrunners for Boeing's CEO position, gaining support from some of Boeing's large shareholders. However, the future of Shanahan's association with Spirit AeroSystems remains uncertain, as Boeing's acquisition of the company is not expected to finalize until mid-2025.
Spirit AeroSystems has been focused on stabilizing operations and improving cash flow, announcing initiatives to enhance quality control, despite facing challenges such as layoffs and liquidity issues.
The company's earnings and revenue information, crucial for investors, indicate that it is expected to operate at a loss in 2024 and hasn't recorded a profitable year since 2019.
These recent developments are anticipated to reshape the aerospace industry, with Airbus and Boeing securing key components for their aircraft production and strengthening their respective supply chains. However, the finalization of both deals is pending due diligence.
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