On Wednesday, Stifel adjusted its price target for Spirit AeroSystems (NYSE:SPR), increasing it to $34 from the previous $30, while maintaining a Hold rating on the stock. The revision comes in light of recent comments from Boeing (NYSE:BA) that suggest a slower rate of deliveries from Spirit to Boeing. Despite the revised delivery expectations, the analyst pointed to the possibility of a buyout by Boeing as a factor that could influence Spirit's valuation in the near term.
The analyst noted that Boeing's Chief Financial Officer's comments earlier in the day hint at advancing negotiations for a potential acquisition. Several key aspects are being monitored, including how Spirit's Airbus business might be separated, the treatment of certain defense programs under Boeing, and the contours of a possible acquisition price.
While the analyst has set the new price target at $34, reflecting what is seen as a reasonable potential buyout price, there is an acknowledgment of complexities that could affect the transaction, including potential divestitures.
The rationale for the price target increase is based on the premise that a buyout price could offer a roughly 20% premium over Spirit's share price before the announcement of the negotiations. However, the analyst also recognizes the possibility that a deal may not materialize, suggesting that if the acquisition does not occur, shares of Spirit AeroSystems might be more accurately valued at around $30.
The assessment of the potential acquisition's implications for Boeing includes several points. A buyout could assure customers and the FAA of improvements in safety and quality, potentially internalize margins that Boeing currently pays out, increase Boeing's capital intensity, require a premium payment, and result in the loss of advances previously paid to Spirit.
On the positive side, Boeing could benefit from refinancing Spirit's higher-cost debt. The most significant factor in favor of the acquisition, according to the analyst, is the enhancement of safety and quality assurance.
InvestingPro Insights
In the context of Spirit AeroSystems' (NYSE:SPR) potential acquisition by Boeing and the recent price target adjustment by Stifel, certain financial metrics and analyst insights from InvestingPro provide additional depth to the narrative. As of the last twelve months leading up to Q4 2023, Spirit AeroSystems held a market capitalization of approximately $4.11 billion. The company's revenue grew by a notable 20.25% during this period, indicating a robust top-line performance which may appeal to a potential acquirer like Boeing.
InvestingPro Data reveals that Spirit's revenue for the last twelve months as of Q4 2023 was $6.047 billion, with a gross profit margin of 3.41%. Despite the challenges, the company's EBITDA grew by an impressive 873.56%, which could be indicative of improving operational efficiency. However, the company's P/E ratio stood at -6.96, reflecting the market's concerns about profitability, especially since the company has not been profitable over the last twelve months.
InvestingPro Tips highlight critical factors for investors to consider. Spirit AeroSystems operates with a significant debt burden and may have trouble making interest payments on its debt, which aligns with the analyst's view that Boeing could benefit from refinancing Spirit's high-cost debt. Moreover, analysts anticipate sales growth in the current year, which could be a factor in Boeing's valuation of the company in the event of an acquisition. On the other hand, 7 analysts have revised their earnings downwards for the upcoming period, which could impact the stock's future performance.
Investors interested in a deeper dive into Spirit AeroSystems' financial health and future prospects can explore additional InvestingPro Tips at https://www.investing.com/pro/SPR. There are more tips available that could help investors make informed decisions, and with the promo code PRONEWS24, they can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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