February 6th, 2020

Boeing 737 MAX Manufacturer, Spirit AeroSystems Drops in Valuation

Spirit AeroSystems (NYSE: SPR) is one of the leading manufactures in the 737 MAX assembly line. Spirit AeroSystems is a non-Original Equipment Manufacturer, which is also known as an OEM. They specialize in the creation and development of aircraft parts, tools, and commercial aviation structures. They focus in three main areas of expertise which are the fuselage systems, the propulsion systems, and wing systems.

Recently the company has been getting dragged down dramatically due to the grounding of the 737 MAX. For many months while the aircraft was grounded by the FAA, Boeing continued to develop and finish additional models. This was slightly due to the order having been placed already with Spirit AeroSystems for manufacturing.

As the large fuselage and wings were being delivered for assembly the only thing left for Boeing to do is to continue assembling the aircraft while the team continues to work around the clock to the get aircraft back in the skies. Near the end of 2019 Boeing halted their production line resulting in a downwind negative effect on the business of Spirit AeroSystems.

Spirit Aerosystems Holdings Inc (SPR)

Negative Publicity

Bringing Spirit Aero back to their prime stock prices will certainly take some time and most importantly new regulations. Unless we can get the 737 MAX back in the air. Spirit Aero Systems is not rapidly producing aircraft parts like they should be. Their largest client is Boeing and with the 737 MAX line still stuck in the hands of the FAA, optimism was dwindling for the stock.

With the 737 MAX being the headline on main news outlets today gaining the attention of the masses have lost trust in the companies we have once strongly supported.

Reports of lay offs have been made already by the company as they look to remain in business during times where production has slowed down. Empty uncompleted aircraft parts lie bare and unused in shipping yards having no clear direction for where they will end up next.

Accounting Irregularities

Back near the end of January the CFO as well as its current principal accounting officer handed in their resignations. The company expeirenced a shocking drop in the stock by about 7% in the pre-market sessions. They had stated that the financial statements for the year 2019 are not subject to the errors made although they will be conducting a review before a final conclusion will be made.

This caught the intention of investors as now a company that is experiencing a half in production is now being talked on the news of how there may be potential errors in the financial reports made by the company. These factors lead investors to develop some fear and uncertainty. Not having clear and reliable data can potentially be a costly error that many investors tend to stay away form.

Technical Analysis

At the time of writing the stock is sitting at $67.10 after coming down significantly from its highs of $102. The image below was sourced by the ThinkorSwim platform to provide a brief overview of the stock in its current position. Based on the analyst provided by the platfrom we have one rating suggesting to avoid the stock completely, While another states to reduce your exposure to the stock. Then we have “The Street” giving a buy rating on the stock.

When we think of the current situation of the company we understand that the 737 MAX section of their business is certainly hurting. Although Boeing just recently completed their test flight for the new 777X which has recieved hundreds of orders for the upcoming years.

With the test flight right around the corner and airlines placing new orders this in result then can provide more business to companies such as Spirit Aero.

Earnings Report

Today on Feb 6th we are expected to hear from Spirit for their Earnings Report. Key factors to listen to will include the outlook for the new 777X and how this will help their existing condition. In addition the progress on the 737 MAX development and how they are being able to mitigate some of the losses incurred by the project.

Should the report return strong then Spirit Aero is in a great position to make a strong push up towards previous trading levels. Failure to satisfy the positive outlook developed by the market will result in rapid sell off of positions in the market. Investors will be looking to use this earnings release to guide their investment approach for the rest of the year.

As always keep in mind that when trading Earnings Reports there is going to be an increase in trading volume which can bring market spikes and quick movement. It is recommended to practice risk management strategies to mitigate exposure to risk.

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