Spirit AeroSystems Catches Rare Double Downgrade. It’s Good for Boeing.

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Boeing

 supplier is facing some headwinds, and the reason why could be good news for Boeing stock. It signals a new part of the commercial aerospace recovery is under way.

On Thursday, Morgan Stanley analyst Kristine Liwag downgraded shares of

Spirit AeroSystems

(ticker: SPR) all the way to Sell from Buy, skipping the Hold rating. Analysts typically downgrade and upgrade stocks one notch at a time.

Her price target dropped to $35 a share from $51.

Spirit AeroSystems stock was down 1.2% in midday trading while the

S&P 500
and

Dow Jones Industrial Average
were up 0.5% and 0.4%, respectively. Boeing stock was down 1%, but that might be the wrong direction based on Liwag’s thinking.

She was looking into coming demand for aircraft and is feeling more bullish about it in coming years, which is good news for the aerospace supply chain as well as Boeing (BA) and

Airbus

(AIR.France).

But she expects “widebody” production to ramp up soon. Widebody refers to twin aisle jets that operate on a lot of long, international routes.

A widebody recover is good for Boeing—it has leading market share in that segment with its popular 787 and 777 jets.

The problem Liwag sees for Spirit AeroSystems is it makes less money on Boeing’s big planes, according to the analyst. The widebody recovery can be a headwind to earnings and cash flow.

Spirit AeroSystems didn’t immediately respond to a request for comment about profitability by plane type. The impact Boeing has on the company is easy to see. Spirit AeroSystems generates roughly 60% of its sales from Boeing, making any shift in Boeing production mix significant for the company.

Liwag’s call is out of consensus for Spirit AeroSystems. More than 80% of the analysts covering the stock still rate shares a Buy. The average Buy-rating ratio for stocks in the S&P is about 58%.

The average analyst price target for Spirit AeroSystems is about $46, almost 60% above recent levels.

One reason for the bullish view is company’s starting point. The stock has been badly beaten up because of Boeing’s problems delivering 737 MAX and 787 jets and because Covid-19 significantly decreased global air travel demand. Shares are more than 70% below all-time highs.

Write to Al Root at [email protected]