Against a weak backdrop on Wall Street during the midweek session, aircraft parts supplier Spirit AeroSystems (NYSE:SPR) helped enliven the mood, with its shares surging dramatically on a production deal with aerospace giant Boeing (NYSE:BA). While the partnership bodes well for SPR stock, the underlying company (and industry) struggles with a credibility challenge.
According to the accompanying press release, Spirit announced that its namesake subsidiary entered into a memorandum of understanding (MOA) with Boeing. Under the tentative agreement, the terms enable “greater collaboration to achieve improved quality and higher deliveries in the future.”
In a statement, Spirit emphasized that “Boeing and Spirit will continue to work shoulder to shoulder to mitigate today’s operational challenges.” Further, company President and CEO Patrick M. Shanahan underscored that the “collective teams will focus on further generating supply chain performance and resiliency.”
Moreover, The Wall Street Journal added that the deal calls for some price increases for Spirit. As well, the supplier will receive a cash advance from Boeing. A component of the Russell 1000, SPR stock ranked among the best-performing U.S. public securities earlier this morning. Also, it pinged as the top trending ticker.
SPR Stock Presents Long-Term Challenges
While SPR stock may be winning the midweek session, it still must climb a wider-scale wall of worry. Jumping 25% in the morning session, shares have only slightly pared down the performance in the early afternoon hours. Nevertheless, inclusive of the robust return, SPR is down about 31% since the January opener.
Even more conspicuous, on a weekly average basis, SPR stock traded at around $68 prior to the dramatic Covid-19 falloff. Exchanging hands at a bit over $21, Spirit sits far from achieving pre-pandemic valuations, imposing credibility concerns.
It may be some time before investors truly feel comfortable with aviation-related endeavors. According to a Reuters article in June of this year, suppliers struggled to keep up with the industry’s recovery efforts. While some insiders maintain optimism, the emerging consensus states that the industry’s sprawling supply chain must undergo an overhaul before it can fully recover.
Unfortunately, that process could take years, which has pressured investments like SPR stock. Certainly, Spirit’s MOA with Boeing should go a long way in reinvigorating confidence. Nevertheless, with individual airliners potentially facing headwinds, many investors remain skeptical.
Why It Matters
Unsurprisingly, given the broader context, analysts rate SPR stock as a consensus hold. This assessment breaks down as six buys, eight holds and two sells. Overall, the average price target lands at $25.29, implying almost 23% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
