The is article has been updated on Friday, May 20, to include commentary from Growth Seeker's Chris Versace.
B/E Aerospace's (BEAV) rating and price target were lowered Friday by J.P. Morgan Securities, with analyst Seth Seifman citing risks of mounting inventories and diminishing growth in emerging markets.
Shares of B/E Aerospace are up about 10% so far on the year, as of midday trading Friday, making the manufacturer J.P. Morgan Securities's "best commercial aero stock," Seifman said, noting the stock's trajectory is at risk of changing course. J.P. Morgan Securities cut the manufacturer's rating to Neutral from Overweight and lowered its price target on BEAV stock to $50 from $54. (B/E Aerospace is part of TheStreet's Growth Seeker portfolio.)
"We still say its a One-rated stock," Chris Versace, co-manager of Growth Seeker's portfolio, said in a Friday phone interview, citing growing demand in China. (Growth Seeker's One-rated stocks represent opportunities to "buy now" vs. Two-rated stocks that will be attractive buys after declines in trading.)
"China will probably become the number-one market for air traffic," he said, noting that 20% of B/E's revenue stems from new aircraft, while 80% comes from repurposed vessels, which is a market that also stands to gain as major carriers such as JetBlue (BLU) look to overhaul cabin experiences from offering bigger seats, remodeled lavatories and wireless internet. "There's a huge catch up needed in air traffic to satisfy that demand," he added.
Meanwhile, Seifman noted that his 2017 earnings-per-share guidance is $3.55, 15 cents below consensus forecasts, underscoring cooling growth in business jets, helicopter and retrofit aircraft sales.
"According to management, this balance should continue growing through year end, albeit at a slower rate, remain flattish in 2017, and then begin burning down thereafter," Seifman said. "We admit that we have little visibility on how this will progress, but the persistent growth of this balance is a source of concern and could result in downward margin revisions in the future."