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Spirit AeroSystems Gains From Air Traffic Growth, Costs Rise

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We have recently issued an updated research report on Spirit AeroSystems Holdings, Inc. (SPR - Free Report) . The company’s third-quarter 2018 adjusted earnings of $1.70 per share surpassed the Zacks Consensus Estimate by 4.3%.

Total revenues came in at $1,814 million, which missed the Zacks Consensus Estimate of $1,817 million by 0.2%. Backlog at the end of third-quarter 2018 was $48 billion, up from $47 billion in the prior-quarter.

Notably, Spirit AeroSystems is one of the largest independent non-OEM aircraft parts designers and manufacturers of commercial aerostructures in the world, in terms of annual revenues. It is also the largest independent supplier of aerostructures to Boeing and Airbus — the two largest aircraft OEMs globally.

Factors Influencing the Stock

Spirit AeroSystems strives to become more innovative by investing in technology and automation. These investments will be aimed at reducing costs, allowing the company to meet increasing production rates of its programs as well as ensuring its competitiveness for the next generation of aircraft.

In line with this, during the third quarter, the company announced the creation of a new research and development complex at its Prestwick, Scotland site, which is expected to open in 2019. Moreover, it delivered the sixth and final system demonstration test article, CH-53K jet to Sikorsky.

Considering solid demand for commercial aircraft and consistent need for defense aircraft in the future, both commercial and defense markets offer immense growth opportunities for Spirit AeroSystems. On the commercial front, a rapid growth in air passenger as well as freight traffic has been fueling demand for aircraft. With the fiscal 2019 U.S. defense budget proposal in favor of increasing expenditures on the nation’s defense capabilities, we may expect Spirit AeroSystems’ defense business to reflect substantial improvements in coming days.

On the flip side, the company is experiencing supplier disruptions, challenges relating to model mix changes from the 737 NG to 737 MAX model, thanks to increased demand for Boeing’s 737 fleet of jets. Consequently, Spirit AeroSystems witnessed substantially higher costs in recent times, related to overtime, expedited freight and surge resources.

Furthermore, the company operates in a highly competitive market. To keep up with other players in this space, Spirit AeroSystems needs to invest substantially in technological progress that would increase capital expenses and in turn might adversely affect its operations and financial condition.

Zacks Rank & Key Picks

Spirit AeroSystems currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same sector are Boeing (BA - Free Report) , Lockheed Martin (LMT - Free Report) and Engility Holdings (EGL - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boeing delivered an average positive earnings surprise of 28.01% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 3% to $15.05 over the past 90 days.

Lockheed Martin delivered an average positive earnings surprise of 13.92% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved 2.9% north to $17.51 over the past 90 days.

Engility Holdings delivered an average positive earnings surprise of 19.98% in the preceding four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 4% to $2.10 over the past 90 days.

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