Spirit AeroSystems Holdings, Inc. Gets Downgraded--Why You Should Care?

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our supercomputer tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best...
Just two (trading) days after Goldman Sachs issued its surprise downgrade of Boeing (BA 2.15%) stock, investors in the aerospace sector got their second bit of bad news Tuesday: Buckingham Research has slapped a sell rating on key Boeing supplier Spirit AeroSystems (SPR 0.79%).

Since hitting its recent high just shy of $36 a share in late January, Spirit shares have shed 23% of their market cap. But according to Buckingham, this is just the start of the bad news. Unprofitable, debt-laden, and burning cash, the analyst is warning investors that Spirit stock still has plenty of room to fall.

So is it time to panic?

Let's go to the tape
Not necessarily -- but there's definitely reason to worry. You see, Buckingham Research isn't exactly a household name, certainly not to the extent that Goldman Sachs is. But here at Motley Fool CAPS, we've been this analyst's performance since it first began releasing public ratings on its stock picks in mid-2012.

What we've found is that, while Buckingham still boasts only a very limited track record, the work it has done shows promise. Outperforming roughly 75% of the investors we track on CAPS, Buckingham has achieved about 62.5% accuracy on its stock picks, and it's done even better in the airlines sector in particular:

Buckingham has only a limited track record in stocks in general -- and no record at all on industrial manufacturers of aircraft. But this analyst's two-out-of-three record on airlines at least suggests the analyst has a "feel" for the airplane industry. This fact alone should make investors wary of investing in Spirit AeroSystems -- or of assuming that just because Spirit stock is 23% cheap-er today than it was two months ago, that the stock is therefore "cheap," period.

Spirit AeroSystems: By the numbers
In fact, Spirit AeroSystems is anything but cheap. Some investors may look at analyst estimates, see the 9.8 "forward P/E ratio," and conclude that Spirit shares are not expensive. But if you ask me, that's the wrong way to look at it. What you really need to focus on at Spirit is what the company has proven it can do already, rather than what it hopes to do in the future.

And what has Spirit accomplished in the past? Well, from 2008 to 2012, the company reported more than $900 million in GAAP earnings. Unfortunately, it blew up this record in 2013, reporting a $614 million GAAP loss that negated more than two-thirds of those supposed profits.

And I say "supposed" for a reason. Because when you examine Spirit's record for cash production, it's apparent that the company was never really profitable in the first place. To the contrary, free cash flow over the 2008 to 2012 period ran negative to the tune of more than $430 million. (And, yes, you guessed it: The company burned cash again in 2013.)

Foolish takeaway
This lack of real cash profits at Spirit is one big reason why the company currently boasts a balance sheet replete with nearly $1.2 billion in debt but only $420 million in cash. It's the reason why I personally never bought into the stock despite its long record of supposed "GAAP" profitability. And it's the reason why, despite Buckingham having only a very short record of success so far, I'm following the analyst's advice today and staying away from Spirit AeroSystems stock.