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Continual reports of chaos at airports underscore what may turn out to be a golden opportunity for investors. Air travel demand has soared, new airplanes are needed and their delivery is being delayed. That means it is a good time to be in the business of selling related parts and equipment.
A team of analysts at TD Cowen led by Cai von Romohr provided a report to clients last week in which they predicted that “ongoing slippage in new aircraft deliveries” was pushing the aftermarket for commercial airplane parts into “an extended sweet spot with potential upside to 2023-24 estimates and solid longer-term fundamentals.”
Commonly used valuation measures for stocks, such as forward price-to-earnings ratios, are based on consensus estimates among analysts working for brokerage firms. Upward revisions to estimates for sales, earnings or free cash flow can support higher stock prices over time.
“We expect aftermarket vigor to be sustained through 2024 with air traffic apt to exceed the 2019 baseline next year since real GDP is projected at 11% above 2019 levels,” the TD Cowen analysts wrote. They noted that pressure to replace older airplanes to reduce greenhouse emissions “is a longer-term issue,” but added that “supply chain delays are limiting the ramp in new deliveries, holding estimated airline capacity growth to 3.5% in 2024.”
Modern jet airliners can be run for decades. This will be a slow transition, and one of the stocks the analysts rated “outperform” in the report can benefit from both trends, supplying parts and eventually riding a wave of accelerating aircraft deliveries: Boeing Co.
BA,
Here are the six stocks the analysts rated “outperform” in their report focusing on the commercial aero aftermarket:
| Company | Ticker | March 24 price | TD Cowen price target | 12-month upside potential indicated by target price |
| Boeing Co. |
BA, |
$197.53 | $230 | 16% |
| Howmet Aerospace Inc. |
HWM, |
$40.25 | $49 | 22% |
| TransDigm Group Inc. |
TDG, |
$703.89 | $830 | 18% |
| Raytheon Technologies Corp. |
RTX, |
$96.44 | $120 | 24% |
| Spirit AeroSystems Holdings Inc. Class A |
SPR, |
$30.67 | $42 | 37% |
| Moog Inc. Class A |
MOG.A, |
$97.36 | $131 | 35% |
| Source: FactSet | ||||
Click on the tickers for more about each bank, including news coverage, financials and analysts’ opinions.
Read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
Leaving the companies in the same order that TD Cowen listed them, here are expected compound annual growth rates (CAGR) for sales, earnings per share and free cash flow per share from calendar 2022 through 2024, based on consensus estimates among analysts polled by FactSet. For comparison, these estimates for the S&P 500
SPX,
are at the bottom of the table:
| Company | Ticker | Two-year estimated sales CAGR through 2024 | Two-year estimated EPS CAGR through 2024 | Two-year estimated FCF CAGR through 2024 |
| Boeing Co. |
BA, |
16.4% | N/A | 73.3% |
| Howmet Aerospace Inc. |
HWM, |
8.2% | 35.1% | 25.7% |
| TransDigm Group Inc. |
TDG, |
10.4% | 37.3% | 33.4% |
| Raytheon Technologies Corp. |
RTX, |
8.0% | 29.0% | 18.9% |
| Spirit AeroSystems Holdings Inc. Class A |
SPR, |
21.5% | N/A | N/A |
| Moog Inc. Class A |
MOG.A, |
5.4% | 17.8% | N/A |
| S&P 500 |
SPX, |
3.7% | 10.1% | 1.8% |
Boeing lost $8.30 a share in 2022, and the consensus 2023 EPS estimate for the company is zero. The consensus 2024 EPS estimate is $5.79.
Spirit AeroSystems HoldingsInc.
SPR,
lost $5.22 a share in 2022. The consensus is for a loss of 5 cents a share this year, with a profit of $1.77 a share in 2024.
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