Spirit AeroSystems Holdings (SPR - Snapshot Report) delivered a strong "beat and raise" on October 31 that prompted analysts to revise their estimates significantly higher for both 2014 and 2015. This drove the stock to a Zacks Rank #1 (Strong Buy).

Despite strong earnings momentum, shares trade at a significant discount to their peers on two key valuation multiples.

Spirit AeroSystems Holdings is one of the largest independent non-OEM (original equipment manufacturer) aircraft parts designers and manufacturers of commercial aerostructures in the world. It is also one of the largest independent suppliers of aerostructures to the two largest aircraft OEMs in the world: Airbus and Boeing.

Aerostructures are structural components, such as fuselage systems, propulsion systems and wing systems for commercial and military aircraft.

The company reports its results primarily in three segments:

• Fuselage Systems (49% of total revenue year-to-date)
• Propulsion Systems (26%), and
• Wing Systems (25%)

Third Quarter Results

Spirit AeroSystems delivered better-than-expected third quarter results on October 31. Adjusted earnings per share came in at $0.90, beating the Zacks Consensus Estimate of $0.75. It was a 17% increase over adjusted EPS in the same quarter last year.

Revenues rose 13% to $1.693 billion, which was in-line with consensus, due to higher production deliveries. Revenue in the Fuselage Systems segment rose 13% while the Propulsion Systems segment saw top-line growth of 14%. Wing Systems grew revenue by 12%.

Operating margins expanded in both the Fuselage and Wing Systems segments.

Estimates Rising

Following strong Q3 results, management raised its full year guidance for both EPS and free cash flow. This prompted analysts to revise their estimates higher too, sending the stock to a Zacks Rank of 1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $4.04, up from $3.56 before the report. The 2015 consensus increased from $3.39 to $3.73 over the same period.

Reasonable Valuation

The valuation picture looks very reasonable for Spirit AeroSystems. Shares trade around 11x 12-month forward earnings, a significant discount to the industry median of 16x. And its enterprise value to EBITDA multiple of 6 is also below the peer group multiple of 7.

If Spirit AeroSystems can continue to beat expectations, these valuation multiples could expand significantly.

The Bottom Line

With earnings estimates rising, and with valuation still reasonable, Spirit AeroSystems offers investors attractive upside potential.