Goldman Sachs raised its rating on Goodrich Corp and downgraded Spirit Aerosystems Inc, saying investors should go long on aerospace stocks with significant aftermarket exposure and short those with original equipment (OE) exposure.
The brokerage raised Goodrich to buy from neutral and cut Spirit to sell from neutral, while reiterating its sell on plane maker Boeing Co.
Goodrich has the most favorable mix of business with 36 percent of revenue from aftermarket, while Spirit gets 95 percent of its revenue from OE, analyst Noah Poponak said in a note to clients dated March 15.
Aftermarket revenue is driven by traffic growth, which should grow in 2010 and 2011, while OE revenue is driven by Boeing and EADS's (EAD.PA) Airbus production, Poponak added.
The analyst also cut his delivery estimates for Boeing by 10 percent for 2010 and 2011, given the bleak economic outlook, and to better align his forecast for margin and revenue declines.
Our historical analysis shows that aftermarket-exposed companies have outperformed in this part of the cycle, he noted.
Goodrich could be potentially attractive to other larger aerospace companies, Poponak said.
The analyst expects earnings to trough in 2010 for Goodrich , and 2011 for Spirit and Boeing.
Boeing shares rose 2 percent to $33.96, while Spirit shares fell 7 percent to $9.31. Goodrich shares rose 5 percent in morning trade on the New York Stock Exchange.
(Reporting by Dhanya Ann Thoppil in Bangalore; Editing by Anil D'Silva)