RBC Capital Initiates Coverage On Several Aerospace & Defense Companies

RBC Capital analyst Ken Herbert initiated coverage on several Aerospace & Defense companies.
Boeing Co BA initiated with an Outperform rating and a price target of $275, implying an upside of 27%.
The analyst sees the shares being at an "attractive entry point from a cyclical perspective." An expected 2022-2023 inventory draw-down will provide positive free cash flow momentum, says Herbert, who sees normalized FCF at about $15 per share.
AAR Corp. AIR initiated with an Outperform rating and a price target of $45, implying an upside of 30%. Herbert sees the company being poised to benefit from the recovery in the commercial aerospace aftermarket and believes that continued execution improvement will support positive investor sentiment.
Ducommun Inc DCO was initiated with an Outperform rating and a price target of $62, implying an upside of 26%. The analyst says the company is well-positioned for further margin expansion as volumes improve in the commercial aerospace market, with the commercial aerospace ramp expected in 2022-2025 likely to offset slower defense growth.
Kratos Defense & Security Solutions, Inc KTOS initiated with an Outperform rating and a price target of $28, implying an upside of 22%, calling the stock a "core small-cap holding for exposure to the U.S. defense market."
Hexcel Corp HXL initiated with a Sector Perform rating and a price target of $65, implying an upside of 12%. The analyst is optimistic on the expected 2022 growth from commercial aero but also warns that a slower ramp on the A350 and 787 will be a headwind for the sentiment.
Mercury Systems Inc MRCY initiated with a Sector Perform rating and a price target of $55, implying an upside of 3%. The analyst states that investors are taking a cautious approach to modeling a return to the high-single-digit organic growth outlook for the company, and the recent deceleration in its growth and strategic re-focus justify patience.
AeroVironment, Inc. AVAV initiated with a Sector Perform rating and a price target of $95, implying an upside of 3%. Herbert says that while concerns with the change in competitive landscape and defense budget are overdone, he also sees flat margins for FY22-23 and fewer top-line upside opportunities.
Heico Corp HEI initiated with a Sector Perform rating and a price target of $145, implying an upside of 3%.
The analyst states the company is well-positioned for above-industry secular growth post-crisis in its aviation business, with potential catalysts coming from its M&A activity, but its margin profile is "well understood" by investors while its current multiple already reflects its near term upside.
VSE Corp VSEC initiated with an Outperform rating and a price target of $60, implying an upside of 22%.
The analyst says while recent contract wins and acquisitions will support strong growth in the Aviation segment, VSE's exposure to business jets also gives it "diversification and upside."
TransDigm Group Inc TDG initiated with an Outperform rating and a price target of $700, implying an upside of 7%. The analyst, who forecasts TransDigm will see about 20% growth in its commercial aftermarket business in FY22, contends that the stock offers investors exposure to the commercial aftermarket recovery with "significant margin expansion and capital allocation optionality."
Spirit AeroSystems Holdings, Inc. SPR initiated with an Outperform rating and a price target of $62, implying an upside of 41%.
Herbert mentions the stock represents an attractive way to recover in commercial aerospace, with potential upside coming from its outlook for 2022 free cash flows.
Price Action: BA shares are trading higher by 0.07% at $214.5 on the last check Friday.

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