Spirit Aerosystems: Beyond Boeing

Every time Boeing (BA) gets a cold, its suppliers seem to catch pneumonia. In some instances, that's deserved, but not with Spirit Aerosystems Holdings (SPR). Trading at $25.01 per share, SPR is trading somewhat below its 200-day moving average and was walloped a few weeks ago when earnings met the company prediction, but were two cents short of analysts' expectations. SPR has a 52-week trading range of $21.07-$41.72 and the PE is presently 11.7.

Spirit Aerosystems Holdings is based in Wichita, Kansas at the former Boeing site. It has locations elsewhere in the U.S., U.K. and soon, Kuala Lumpar and Europe. SPR provides manufacturing and design expertise for a wide range of products and services for aircraft original equipment (specializing in fuselage, propulsion and wing systems), aftermarket parts and retro-fit packages.

Although originally a Boeing dominated company, Spirit Aerosystems has diversified within the aircraft sector to become a large suppler for Airbus (including the new A380), Cessna, Gulfstream and Beechcraft amongst others. Importantly, SPR maintains a huge inventory of certified parts for almost all Boeing commercial and military aircraft and has stockpiles of parts for other aircraft. Their aftermarket installation and aircraft maintenance programs are widely respected to be amongst the very best in the world.

Boeing's recent delay (third time's a charm) of its 787 Dreamliner will not have a significant impact on SPR, as earnings may be impacted a maximum of 5%, which should be more than compensated for by aggressive orders elsewhere, including a new working partnership with Rolls-Royce. With SPR being the largest aerostructure supplier for both Boeing and Airbus, the bases are covered.

Anticipated cyclical slower growth of aircraft sales are predicted to begin in 2010. SPR's repair, spare parts inventory for active aircraft, and worldwide service capabilities and diversification amongst numerous types of aircraft should deliver handsome profits regardless of new aircraft production.

I believe that Spirit Aerosystems should be considered for purchase as a play on transportation that is not married to a branded airline or single "big box" company. I would wait to buy shares until SPR decides whether to issue more shares (perhaps mildly dilutive to current shareholders) or increase its borrowing power through other means. This situation should be clarified by mid-May, 2008. Long term, SPR is a security well worth your investment dollars at an entry point in the low $20s.

Disclosure: The author does not presently hold SPR stock.

Comments

[Minor Error]

The "Gulfstream" you mention is part of General Dynamics (GD), not Gulstream International (GIA)