Sector Snap: Aerospace and defense stocks drop

Richard Safran lowered his sector rating to "Cautious" from "Neutral," pointing to a combination of record fuel prices--which have pushed major airlines to reduce their number of flights--and broader economic weakness. He said the stocks could fall 20 percent from their current prices.

"We think the market is not factoring in that the combined effect of accelerated crude prices, a weak economy, and rapidly deteriorating airline fundamentals could pose a worse problem for the aerospace group than 9/11 and SARS," he said.

As carriers reduce orders from airplane makers, he said, Wall Street's estimates will come down and aerospace stocks will lose value.

Safran said Boeing Co. shares have the farthest to fall. He downgraded the stock to "Sell" from "Neutral" and placed it on his Conviction Sell List, a portfolio of stocks with negative ratings. Orders are what move Boeing shares, he said, not profits or deliveries, and as orders fall sharply over the next two years, the stock will come down.

Shares lost $44.55, or 6.1 percent, to $70.24 in afternoon trading, and hit a two-year low of $69.83.

Safran now thinks Boeing shares will fall to $60 over the next year. He previously had expected them to rise to $87 over the next six months.

The analyst also cut his rating on Precision Castparts Corp. and Textron Inc. to "Neutral" from "Buy." In addition to those companies and Boeing, he reduced his targets for shares of Goodrich Corp., Hexcel Corp., Spirit AeroSystems Holdings Inc. and Rockwell Collins Inc.

Lockheed Martin Corp. remained on his Conviction Buy List.

Precision Castparts shares lost $5.36, or 4.9 percent, to $103.68.