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  • Spirit AeroSystems Stock: 36.10% Yield Potential with Aviation Industry Recovery

Spirit AeroSystems Stock: 36.10% Yield Potential with Aviation Industry Recovery

Company Name: Spirit AeroSystems Holdings
Ticker: SPR.US
Entry Price: $38.20
Target Price: $52
Projected Yield: 36.10%
Time Line: 3 to 6 months
Risk: High

About Spirit AeroSystems Holdings

Spirit AeroSystems is a US based company that designs aircraft parts and manufactures commercial aircraft structures, such as fuselage systems, propulsion systems, and wings. It works closely with Boeing and Airbus, which are the main Spirit's customers, accounting for 95% of all earnings; in 2019, Spirit received 79% of its earnings through Boeing contracts.

What's the Idea?

Capitalize on a stock that may rise with positive news on the 737 Max deal and the COVID-19 vaccine progress.

Buy Spirit AeroSystems Holdings >>

Why Trade Spirit AeroSystems Holdings? 

Reason 1: Positive news on Boeing 737 Max and COVID-19 Vaccine

Since early November, Spirit AeroSystems stock has been actively rising on positive news about the COVID-19 vaccine release, which means the lockdown is going to be eased and international flights, resumed.

Besides, Boeing 737 Max aircraft was approved for the flights again. In early December, Boeing and the American Airlines Group launched a campaign to restore public opinion about the 737 MAX by organizing a flight for journalists. Besides, rumor has it that Ryanair was planning to order as much as 75 737 MAX's, which may also boost confidence.

This news may bring Spirit AeroSystems' earnings back to their previous level next year.

Reason 2: Business Expansion Despite Current Conditions

Despite the challenging situation in the industry, Spirit AeroSystems closed the deal with Bombardier in late October, acquiring their aerostructure and aftermarket facilities. The deal was worth $865M, out of which Bombardier's cash compensation amounts to $275M (originally, $500M).

The core advantage for Spirit AeroSystems lies in the increased cooperation with Airbus and, accordingly, increased earnings diversification, the effect amounting to 6%.

Besides, Spirit AeroSystems has recently canceled a $420M deal with Asco. In the current environment, asset acquisition at a discount might significantly increase the company's future earnings, especially when we are heading into the full recovery of international air traffic and the industry as a whole.

Reason 3: Stable Financial Condition and Positive Outlook

The entire aviation industry was badly hit with the COVID-19 pandemic, Spirit AeroSystems being no exception. The earnings have dropped by 57% year to date, while the operating loss for Q1-Q3 amounted to $711.40M, against $665M profit a year earlier. The main drawdown occurred in Q2 2020, while in Q3, the earnings started gradually recovering, and the loss started contracting.

The company continues cutting operating expenses, including job cuts, which may lead to cost savings of up to $1B per year. The company had a negative free cash flow of $683M this year; however, Spirit did not face any lack of liquidity or debt servicing. In Q3 2020, the company received a new loan for $900M, $500M out of which being with a maturity date in 2025.

As a result, the debt amounts to $ 3.90B, while the cash is equal to $2B, including the deal with Bombardier. Spirit AeroSystems may well overcome the current crisis and fully restore its earnings and margins.

Currently, the company looks much underpriced, according to its core ratios.

How to Use the Idea

  1. Buy Spirit AeroSystems Holdings stock at $38.20. Please note: Since early November, the company's value has already more than doubled, so there may be a correction before further growth. We recommend you scaling in by halves or thirds when managing your position.
  2. Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use recommendations by our analysts. 
  3. Sell the stock when the price is at $52 per share.

How to Buy Spirit AeroSystems Holdings?

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy shares in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type SPR.US (Spirit AeroSystems ticker in the NYSE) in the search box, and select SPIRIT AEROSYSTEMS HOLD in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type SPR.US (Spirit AeroSystems ticker in the NYSE), and select SPIRIT AEROSYSTEMS HOLD in the results. You will then see Spirit AeroSystems stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.

Buy Spirit AeroSystems stock, don't miss the aviation industry recovery!

Buy Spirit AeroSystems Holdings >>

*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.