Boeing 737 MAX fuselage supplier Spirit AeroSystems Holdings said Boeing recently asked it to halt its production of MAX parts for a while. The news rattled investors’ confidence, bringing new questions about future MAX production rates as well as the troubled plane’s recertification timeline.
Now Wall Street is weighing in about what Spirit Aero’s (ticker: SPR) news means for Boeing shares (BA) as well as stock in other aerospace suppliers.
Spirit Aero said in a Wednesday evening news release that the company no longer expects to manufacture 125 MAX shipsets—all the parts required for one jet—in 2020. That amount was agreed upon earlier as Boeing planned to restart MAX production and deliveries.
The MAX—Boeing’s newest model single-aisle jet—has been grounded worldwide since mid-March 2019 following two deadly crashes inside of five months. Boeing has been working with global aviation regulators on fixes and hopes to be delivering the MAX again to airline and air-leasing customers by the end of the summer.
The news is worse for suppliers than Boeing, according to Benchmark analyst Josh Sullivan. “While improving air traffic is lifting prospects for the aerospace industry, we continue to prefer Boeing over suppliers,” he wrote in a Thursday research report reviewing Spirit Aero’s news.
Before Boeing halted MAX production in 2019, it had built and parked about 450 MAX jets. Selling the parked planes will generate cash for Boeing, but the mountain of inventory has to be worked through before things return to normal for aerospace suppliers.
Sullivan rates Boeing shares the equivalent of Buy and has a $260 price target for the stock.
Not everyone is as optimistic as Sullivan. Baird analyst Peter Arment wrote the new meant Boeing 737 MAX production would be “much lower for longer.” He is concerned that lower production will hurt Boeing’s cash flow far into the future. He rates shares the equivalent of Hold and has a $143 price target.
Vertical Research Partners analyst Rob Stallard took a different tack in a Friday research report writing that MAX recertification might be pushed out to September, a little later than investors currently expect. He didn’t focused on the Spirit Aero news, instead referencing trade publications he follows.
Stallard, like Arment, rates shares Hold, but his target price for Boeing shares is only $118.
Wall Street is lukewarm on Boeing stock. Only about 45% of analysts covering the company rate shares the equivalent of Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is about 55%. What’s more, the average analyst price target is about $180 a share, a little below recent levels.
A target price below where shares trade isn’t typical for Wall Street analysts.
The Spirit Aero news sent Spirit and Boeing shares down 15.6% and 16.4%, respectively, on Thursday—even worse than the steep drops of the Dow and S&P 500. But Spirit Aero stock is up 5.1%, at $27.50, in recent trading. Boeing shares have bounced back by 8.7%, at $184.83.
The MAX was the dominant issue for Boeing in 2019, but not so in 2020, as Covid-19 has hammered the entire aerospace value chain. Many fewer people are flying. Passengers in the U.S. fell about 81% year over year on Thursday, according to Transportation Security Administration data.
The unprecedented declines have weighed on stock prices. Aerospace supplier stocks tracks are down about 35% year to date. Boeing shares are off about 43%. U.S. airline stocks have fallen more than 40% on average.
Write to Al Root at allen.root@dowjones.com
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Bad News About Boeing’s MAX Jet Could Be Worse for Its Suppliers - Barron's
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