What's up guys and welcome back to wall street millennial, if you don't already know, we used to run a second channel wsm research, where we posted dd on high growth stocks. Recently, we rebranded the channel to be called the economic outlook where we cover economic issues such as hyperinflation and development. You might have noticed the narration is different. My brother and i jointly run the wall street millennial channel.

My brother does a narration for economic outlook since we aren't running wsm research anymore, we'll start uploading stock dd videos on the main channel, keep in mind that we are not financial advisors and this video is for entertainment purposes. Only make sure you do your own research and consult with a professional before making any investment decision. Today, we're going to take a look at a stock, uniquely positioned to benefit from the reopening and recovery of travel this summer and into the second half of 2021, with the vaccines rolling out, people finally feel comfortable traveling, and there will be a massive pent-up demand for Air travel, the air, travel and aerospace companies hit hardest by the pandemic last year are already starting to have a rebound and there's likely more room to run on the recovery trade. Specifically, we think that airplane parts producers have a lot of upside.

As people start flying again, airlines will have to order new airplane parts for their fleets and replace their old, inefficient aircraft. This could cause a huge surge in demand that will massively benefit not just the airplane manufacturers themselves, but also their entire supply chain, specifically we're looking at spirit, error systems, ticker, symbol, spr. This is not to be confused with spirit airlines, which has the ticker symbol. S-A-V-E spirit aerosystems produces fuselages for the boeing 737 boeing 787 parts of the fuselage for the airbus a350 and the cockpit section of the fuselage for nearly all airplane manufacturers.

The fuselage is the main body of the airplane. Spiro also makes wings and propulsion systems for many airplane models with a pandemic level. Restrictions of 2020 air travel grounds to a near hull which put a damper on spirit's business. This black line represents tsa screenings of airline passengers in 2020.

As you can see, there is a sharp drop off in april with a gradual rebound throughout the rest of the year. The blue line represents 2021 passenger numbers, have been very strong in the first half of the year and appear poised to rebound to 2019 levels within the coming months, with airlines struggling to scrape by during the pandemic. Many of them cancelled their orders for new airplanes dramatically. Reducing the demand for spirit's, fuselage and wings from 2016, through 2019 spirit, had robust revenue, growth and strong profitability in every year.

However, in 2020, their revenue tanked by 57 and they reported an 870 million dollar loss, their revenue trough in the second quarter of 2020 and has gradually been recovering. Since then, if global economies continue to reopen, there's no reason to believe that spirit's revenue and profitability couldn't exceed 2019 levels within the next couple years. Spirit is highly dependent on boeing, which is its largest customer. By far in 2019, boeing commercial planes made up 74 of spirits revenue in 2020.

This number declined to 48 as boeing wars declined more than defense orders, which historically made up only six percent of their revenue. 2020 was an anomaly once commercial air travel fully recovers. Spirit's revenue mix will likely revert to its 2019 level, heavily dominated by boeing commercial jets. This chart shows 2019 deliveries of all airplane models using spirit's, fuselages and wings.

Boeing makes up 56 of airplane deliveries and within mowing the 737 makes up the vast majority. The 737 makes up 39 percent of total delivery sphere is involved in obviously, the 737 is of extreme importance to the company. A recovery of the 737 means a recovery of spirits business even before the pandemic. The 737 was under pressure.

In 2019, there were two fatal accidents in indonesia and ethiopia involving the 737 max where 346 people tragically died. The 737 max is the latest generation of the 737 plane program. It is the only 737 that boeing still makes the crashes were the result of a faulty flight control system that boeing had to re-engineer regulatory bodies throughout the world grounded the 737 until the safety issues could be satisfactorily resolved. In light of the suspension, boeing stopped production of the plane in early 2020.

This had the effect of tanking boeing's revenue as well as spirits, but the ordeal of the 737 max grounding has finally come to an end. Boeing has satisfactorily resolved all issues relating to safety. The max has currently been recertified and is allowed to fly in the u.s, canada, the eu, the uk, the uae, australia, brazil, fiji and vietnam. The only major market yet to recertify the plane is china and they are expected to do so soon.

They need the 737 to support their growing domestic air travel industry. Now that the faa and other agencies have given their stamps of approval, it is likely only a matter of time before china does the same. Now that air travel is rebounding, there should be a strong recovery in 737 max orders over the next couple years. During the pandemic, airlines grounded their fleets and didn't order any new planes.

Typically, airlines purchase a certain number of planes each year to replace older planes in their fleet. The 737 max is far more fuel efficient than the older generations. Fuel is one of the biggest costs for airlines. Increasing fuel efficiency is an extremely important mandate for airlines and it's often well worth the investment to buy the latest airplane.

The process of replacing old planes was put on hold during the pandemic, so there could be a tremendous amount of pent-up demand for replacements, and you can already start to see this demand. Materializing american airlines recently placed an order for 25 near 737 maxes in anticipation for the post-pandemic travel rebound in march, southwest put in an order for 100 new planes. Alaskan airlines recently increased their max orders by 15 and is planning to transition to an all-boeing fleet with the recovery of air travel and the re-certification of the 737 max. It seems highly plausible that deliveries could recover to 2019 levels by 2020 too.

Assuming airbus also recovers. Spirit's revenue could return to 2019 levels in 2019 spirit, made 7.8 billion of revenue and 530 million dollars of net profit during 2020 spirit, increased its net debt load to about 2 billion dollars to fund its operations and weather the storm before the pandemic. Its net debt burden was roughly 700 million dollars on the bright side. The fact that they raised so much debt financing meant that they didn't have to dilute the equity value by issuing new shares.

As of the first quarter of 2021, they had 104.1 million shares outstanding. This is only a marginal increase over the 103.7 million that they had at the beginning of the pandemic. The higher debt burden creates a higher interest, expense for the first quarter of 2021 spirit recorded interest, expense of 60 million dollars or a full year run rate of 240 million dollars. This is 150 million dollars higher than their 2019 interest, expense of 92 million dollars.

If revenue and ebitda recovered to pre-pandemic levels, they could make their 2019 net profit minus the 150 million dollars of additional interest expense. This would give them net profit of 380 million dollars at the current share price of 47. That would imply price to earnings multiple of 13 times. This is a very cheap price to pay, given the long-term tailwinds behind the aviation industry, as poor developing countries finally become wealthy enough to afford air travel demand for airplanes will increase.

While this trend of growth was disrupted by the pandemic, there's no reason to believe that this growth won't continue post-pandemic, given the long-term growth potential, it seems that a 20 times multiple on normalized earnings of 380 million dollars could be justified for spirit. This implies a 73 stock price or roughly 55 upside over the current price. The bolt case of spirit air systems is heavily reliant on the continued recovery of air travel. Given the global vaccine, rollout countries are gradually opening their borders and returning to air travel.

This recovery has already been manifested in the tsa check-in numbers, which are quickly reaching pre-pandemic levels. The biggest risk to the bold case is a possible resurgence of the virus, such as the new delta variant. The vaccines are largely effective against variants, so this risk seems limited. Furthermore, the ability of pharmaceutical companies to make the vaccine in less than a year proves the power of human ingenuity.

If there are new strains that are immune to the current vaccines, the vaccine developers should be able to tweak the existing vaccines pretty quickly making them robust. Against the new strains, alright guys that wraps it up for this video, what do you think about spear aerosystems? What other recovery plays? Are you buying? Let us know in the comments section below, if you like this content, don't forget to hit that like and subscribe button as always. Thank you. So much for watching and we'll see you in the next one wall, street millennial signing out.