Carnage in the Aero Complex: Rotation, Technical Trends Exacerbating Supplier Selloff, Though This Is Small Consolation

Many Aero stocks have not traded well recently, leaving them vulnerable into earnings, and we saw evidence of this today, with parts of the sector — especially upstream — under significant pressure. None of the stocks we cover reported today, but the market moves affected them. Fundamentally, results fell short (CRS and HXL sales were light), but there was no backing off demand strength, and today's moves were not about weak traffic growth or the aftermarket. The Aero stocks selling off tended to be those that had done well and enjoyed high valuations until mid-summer, and which are good structural stories based on supply-demand imbalances, content gains and visible growth. Conversely, some of today's winners are higher quality and defensive but had been out of favor on short-cycle AM concerns or slower organic growth (HEI, TDG), or on execution concerns (HONA, SARO). Several of the stocks that sold off have seen multiples compress since the summer, but valuations are not necessarily c