Evaluating Valuation Following Major Customer Talks, Delivery Delays, and Management Probe
Spirit AeroSystems Holdings (SPR) has been under the spotlight following three significant developments: a request for financial assistance from Boeing and Airbus, a supplier-driven slowdown in Boeing deliveries, and an investigation into management conduct.
See our latest analysis for Spirit AeroSystems Holdings.
This wave of news follows a solid run from Spirit AeroSystems. While the share price fell 4.1% on the last trading day, its year-to-date gain stands at 15.2%. Momentum has waned in recent weeks, but the overall picture remains positive; Last year’s total shareholder return of 25% indicates that investors are optimistic about the return potential despite recent headwinds.
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While shares have continued their sharp rise over the past year, the key question now is whether Spirit AeroSystems is trading below its true value following recent turbulence, or whether the market has already factored in the potential for a future recovery.
Spirit AeroSystems is currently trading at a price-to-sales ratio of 0.7x, and its shares last closed at $38.65. This coefficient places SPR well below peer group and industry averages, signaling that the market allocates a much lower value to its revenues than its competitors.
The price-to-sales ratio is a useful tool in valuing unprofitable companies, especially in capital-intensive industries such as aerospace and defense. It compares a company’s market capitalization to its annual sales and gives investors a perspective on how much the market is willing to pay for each dollar of revenue.
Spirit AeroSystems is valued at 0.7x, much lower than the US Aerospace & Defense industry average of 3.5x and the peer average of 13.2x. However, our estimates suggest a reasonable price-to-sales ratio is 0.4x. This means that even at this discount, shares may still be more expensive relative to fundamentals. Further downside could occur if the market re-rates to the fair rate.
Explore SWS fair rate for Spirit AeroSystems Holdings
Result: Price to Sales ratio 0.7x (UNDERVALUED compared to peers, but EXPENSIVE compared to fair ratio)
However, if operational headwinds persist for longer than expected, slowing revenue growth and ongoing net losses could challenge the prospects for a recovery.
Learn about the key risks in this narrative from Spirit AeroSystems Holdings.
While the price-to-sales ratio shows Spirit AeroSystems trading at a discount to its peers, our DCF model offers a quite different perspective. Based on this discounted cash flow analysis, the shares are trading well below the estimated fair value of $216.34, indicating that the shares may be significantly undervalued based on their estimated cash flows.
