Courtesy of Zero Hedge
The facts:
On July 31, a research report by Bank Of America, titled “Credibility goes out the door, lower PO to $15 [from $20]“, slams Spirit Aerosystems with the following harsh report:
On September 15, less than a week before Spirit Aerosystems announces a $300 million bond offering to repay a credit facility whose Joint Book Runner (read, bank most on the hook for) is Bank of America, and which development we already discussed previously, the same analyst comes out with the following price target increase.
Spirit AeroSys-A (SPR; C-1-9; $16.36)
Our P.O. of $19 is based on a DCF analysis using an implied growth rate of 2.8%, a 12.7X continuing value multiple and a 10.6% equity discount rate. Risks are before its aquisition by ONEX there is little financial history for SPR as a profit center. Investors cannot depend on the historical data of Boeing Wichita. Spirit, Boeing, and Onex are defendants in a lawsuit filed by former Boeing employees who were not re-hired by Spirit. The plaintiffs seek an unspecified amount in compensatory damages and more than $1.5bn in punitive damages. We believe an unfavorable ruling could result in material changes to our forecasts for Spirit. Revenues are heavily dependent on Boeing: 97 percent of revenues are derived from the commercial OEM market and 90 percent of Spirit’s revenues are currently derived from Boeing. A material change in the cycle or Boeing could negatively impact Spirit. The majority of sales are OEM, and there is little aftermarket, which could prove problematic if the civil aircraft cycle turns dramatically. Higher oil prices would likely derail air traffic growth, and therefore aircraft demand, resulting in a downturn in commercial aviation. Given that aircraft are priced in dollars, an unexpected rapid devaluation in the dollar could significantly impact order activity.
In a month and a half all the negativity has been forgotten and the company round trips its BofA Price Target from $20 to $15 back to $19. Ironically even while the follow on note (no pun intended) is rather cautiously worded, it somehow merits a 22% increase in the stock price even though not even one earnings report has been issued since the prior note. Way to stay ahead of any change in fundamentals.
Summary: Bank of America pays down its revolver via a new $300 million senior note (whose underwriter is still unknown, but ZH staff is willing to short GS stock and thus take on the Federal Reserve itself, that the lead manager will be either Goldman Sachs or Bank of America, or likely both). As for credibilty it does indeed “go out the door,” however the credibility addressed is not that of SPR, but Bank of America itself.
And, in a tried and true tradition, we present Bank Of America’s various conflicts of interest in SPR.
- The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: Bombardier Inc., General Dynamics, Spirit AeroSys-A.
- MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: Bombardier Inc., General Dynamics, Spirit AeroSys-A.
- MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company within the next three months: Bombardier Inc., General Dynamics, Spirit AeroSys-A.
- MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 10th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 10th day of a month reflect the ownership position at the end of the second month preceding the date of the report: Spirit AeroSys-A.
- MLPF&S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the company on a principal basis: General Dynamics, Spirit AeroSys-A.
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