These 5 Aviation Stocks Slide As Melius Warns ‘Several Years Of Robust’ Aftermarket Growth May Be Ending

Melius Research downgraded GE Aerospace, HEICO, Honeywell Aerospace Technologies, TransDigm and Woodward to ‘Hold’ from ‘Buy’.

• Melius warned that several years of exceptionally strong commercial aviation aftermarket growth could begin to moderate.
• It expects aftermarket growth to slow to the high-single-digit percentage range next year.
• The firm cut its price targets on all five aerospace companies, with the largest reduction coming for GE Aerospace.

Aviation stocks traded lower in early morning trade on Monday amid broader market weakness after Melius Research downgraded five aerospace stocks, warning that years of exceptionally strong aftermarket growth could begin to slow.

In a note to investors cited by TheFly, the firm downgraded GE Aerospace (GE), HEICO (HEI), Honeywell Aerospace Technologies (HONA), TransDigm Group (TDG) and Woodward (WWD) to ‘Hold’ from ‘Buy’.

iShares U.S. Aerospace & Defense ETF (ITA), which tracks U.S. aerospace and defense companies, was down 0.46% in pre-market trade. SPDR S&P Aerospace & Defense ETF (XAR) edged 0.63% lower.

Among the cohort cited by Melius, HONA stock was the worst hit, dropping more than 3% in early morning trade. GE stock and WWD shares fell more than 1%, while HEICO shares declined roughly 2%. TransDigm edged 0.23% lower.

‘Several Years Of Robust’ Aftermarket Growth End

Melius said commercial aviation aftermarket growth, which includes replacement parts, repairs and overhaul services for aircraft already in service, is likely to moderate. It expects growth to slow to the high-single-digit percentage range next year, below the low-teens growth some investors have been modeling.

It noted that the aftermarket has benefited from several overlapping factors in recent years, including aging aircraft fleets, delays in new aircraft deliveries and engine durability issues that have kept older planes in service longer. 

While that backdrop has supported “several years of robust” aftermarket growth, Melius said it expects the pace of that growth to cool.

Aerospace Stocks See Price Targets Slashed

Melius also lowered its price targets for all five companies, adding to the pressure on the stocks. 

The firm cut its GE Aerospace price target to $350 from $432 and its HEICO target to $350 from $402. The target for Honeywell Aerospace was reduced to $190 from $216, while TransDigm's target was lowered to $1,331 from $1,477. The price target on Woodward shares was reduced to to $388 from $458.

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