Morgan Stanley starts coverage of Aerospace, rates Boeing (BA) 'Underweight'

Morgan Stanley’s equity analyst Kristine Liwag has rated Boeing (NYSE: BA) stock as “Underweight” after the bank initiated the coverage of Aerospace with a Cautious industry view.

Instead, Liwag sees better opportunities for investments in the aerospace industry. She rates both Raytheon (NYSE: RTX) and TransDigm (NYSE: TDG) as “Overweight” with price targets of $89 and $772, respectively.

On the other hand, both BA and Spirit AeroSystems (NYSE: SPR) have “Underweight” ratings with price objectives set at $181 and $18.

“Our bottom-up analysis of 800 airlines shows that 80% of the OEM pre-COVID-19 orderbook is for growth and 20% for replacement. Due to higher aircraft cancellation risks, we are relatively Underweight OEMs, BA and SPR, as we see better opportunity in aftermarket players, TDG and RTX,” Liwag said in a note to clients.

Boeing, in particular, is at risk of losing around $73bn in revenue between 2020 and 2025. The aerospace giant is vulnerable to 737 MAX cancellations as buyers didn't have to pay penalties for cancelled orders as aircraft deliveries were delayed by a year. Liwag notes that the “Underweight” rating is on a relative basis as exposure to the aerospace industry could be tied to other companies.

“Increased air traffic is positive for the aerospace aftermarket. We are Overweight aftermarket players TransDigm (ticker: TDG) and Raytheon Technologies (ticker: RTX),” she wrote.

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