UBS Cuts Spirit AeroSystems, Warns 'We're Close To The Peak'

On Friday, UBS issued a report on Spirit AeroSystems Holdings, Inc. (NYSE: SPR), with analysts believing there is limited upside from the company's current stock price. Analysts at UBS downgraded Spirit AeroSystems from Buy to Neutral and lowered their price target from $65 to $48.

David Strauss and Darryl Genovesi, analysts at UBS, wrote, "While SPR's cash generation has improved significantly over the last several years, we see limited upside from here and with risk to the cycle building, we are downgrading to Neutral. We think lower 777 production rates along with deflationary pricing on mature programs and further step downs on 787/A350 will curtail cash with downside risk if the cycle rolls over."

Related Link: Sterne Agee CRT Defends Boeing And Spirit AeroSystems On "Refreshed" Forecasts

Justification For Rating Downgrade

UBS gave two reasons why they downgraded Spirit AeroSystems:

1. Free Cash Flow Generation
UBS believes that FCF will average $400 million in 2016-2018, which is lower than prior estimates. This is a result of UBS forecasting lower pricing power on Spirit's their 787 and A350 products as there is a potential for an oversupply of components.

2. Production Cuts
Analysts believe that Spirit AeroSystems may have to cut production in order to avoid saturating the market amid potentially slowing demand. UBS believes that between global macroeconomic weakness and aircraft manufacturers' decisions to reduce production of large airplanes, Spirit may have limited upside for growth from current share prices.

Spirit AeroSystems was recently seen trading down 4.28 percent on the day at $44.08.

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