{"id":58933,"date":"2023-09-09T11:28:42","date_gmt":"2023-09-09T15:28:42","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/air-travel-is-still-recovering-buy-aar-stock\/"},"modified":"2023-09-09T11:28:46","modified_gmt":"2023-09-09T15:28:46","slug":"air-travel-is-still-recovering-buy-aar-stock","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=58933","title":{"rendered":"Air Travel Is Still Recovering. Buy AAR Stock."},"content":{"rendered":"
\n

Air travel is still recovering, but there\u2019s no need to buy airline stocks to play it. Investors should buy
\n AAR
\n instead. <\/p>\n

AAR (ticker: AIR) isn\u2019t a household name, but every airline knows it because it sells used, repaired, and overhauled engine and airframe parts they need to keep their planes flying. The $2 billion company also provides repair and maintenance services at seven facilities spread across the North America. What\u2019s more, AAR is an aerospace parts distributor. More planes flying equals more business for the company. <\/p>\n

\n

And more planes are in the air. April 2023 was the first month that worldwide domestic air traffic\u2014flights that originate and land in the same country\u2014exceeded prepandemic levels. The domestic airline industry finally put Covid in the rearview mirror. International air traffic is also growing but hasn\u2019t eclipsed prepandemic levels yet. In July, the latest global data available, international travel was about 11% below July 2019 levels. There\u2019s still room for recovery.<\/p>\n

But the air-travel revival isn\u2019t the only reason to like AAR stock. Its used-parts business is set to improve as well. Original equipment manufacturers such as
\n General Electric
\n (GE) and
\n RTX
\n (RTX) supply most of the new spare parts for engines, but airlines also take used parts from authorized suppliers to save money. AAR is a big player in those used parts, which the industry calls \u201cused serviceable material,\u201d or USM. <\/p>\n

AAR\u2019s USM business should accelerate as air travel recovers and as deliveries of the newest 737 MAX and A320neo jets from
\n Boeing
\n (BA) and
\n Airbus
\n (AIR.France), respectively, accelerate, replacing older planes. Many of those older jets fly with CFM56 engines built by GE and
\n Safran
\n (SAF.France). The CFM56 is one of the best-selling engines of all time, with more than 33,000 delivered. It\u2019s a big opportunity for AAR, which should have a large supply of new parts from decommissioned airplanes. <\/p>\n

<\/p>\n

<\/p>\n

\n
\n\n\n\n\n\n\n\n\n\n\n
Headquarters<\/th>\nWood Dale, Ill.<\/th>\n<\/thead>\n
Recent Price<\/b><\/td>\n$58.35<\/td>\n<\/tr>\n
52-Wk Change<\/b><\/td>\n37.5%<\/td>\n<\/tr>\n
Market Value (bil)<\/b><\/td>\n$2.0<\/td>\n<\/tr>\n
2024E Sales (bil)<\/b><\/td>\n$2.2<\/td>\n<\/tr>\n
2024E Net Income (mil)<\/b><\/td>\n$117.5<\/td>\n<\/tr>\n
2024E EPS<\/b><\/td>\n$3.55<\/td>\n<\/tr>\n
2024E P\/E<\/b><\/td>\n16.4<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Note: Fiscal year ends in May. E=estimate<\/p>\n

Source: Bloomberg<\/p>\n<\/div><\/div>\n<\/p><\/div>\n

\u201cPart of the reason it\u2019s different is it plays in used aircraft parts, where many others don\u2019t,\u201d explains Melius Research analyst Robert Spingarn. \u201cThere\u2019s a point [where] airplanes [stop flying] and they get harvested for parts.\u201d <\/p>\n

Growth is showing up in results and estimates. In 2019, AAR generated earnings per share of about $2.23 on sales of $2.1 billion, before taking a hit because of Covid-19. But profits have rebounded and are now expected to hit $3.20 on sales of $2.1 billion in 2023. Sales and earnings are projected to grow at about 10% and 16% a year on average between 2023 and 2025. <\/p>\n

Growth hasn\u2019t shown up in the valuation multiple yet, though. AAR stock trades for about 16.7 times 12-month forward earnings, below the
\n S&P 500\u2019s<\/span>
\n 19.2 times, despite projected earnings growing seven percentage points faster than the benchmark index. Growth like that should be worth 20 times earnings, according to Spingarn, who has a $73 price target on AAR, up more than 25% from a Friday\u2019s close of $57.81. <\/p>\n

He isn\u2019t alone in his positive views. All four analysts covering the company rate shares Buy. The average analyst price target is a little lower at $68 a share, up about 18% from recent levels. <\/p>\n

Four analysts, however, isn\u2019t a lot\u2014even for a small-cap company. AAR is trying to change that, making it easier for investors to understand what it does. At its analyst event in July, the company announced three new reporting segments\u2014integrated solutions, parts supply, and repair and engineering. Before the change there was less detail about key businesses.<\/p>\n

<\/p>\n

<\/p>\n

\n

See All the Stocks We\u2019re Bullish\u2014and Bearish\u2014On<\/h4>\n<\/p><\/div>\n<\/p><\/div>\n

There is also a renewed focus on mergers and acquisitions. The company just paid about $120 million cash, plus an additional $20 million depending on how the acquired business performs, for aircraft maintenance service provider Trax. It\u2019s the first significant acquisition since 2017, says the company. Trax sells software that helps companies manage their aircraft maintenance and will help AAR sell more used parts.<\/p>\n

\u201cWe are now more focused than ever,\u201d AAR CEO John Holmes said at the analyst event. \u201cAnything we do, any investment that we make for organic growth or inorganic expansion, is going to be around these three areas of focus.\u201d<\/p>\n

AAR\u2019s balance sheet is well-positioned to add businesses. The company ended May with less than $200 million in net debt on its books. Earnings before interest, taxes, depreciation, and amortization, or Ebitda, are expected to be about $214 million in 2023, for a debt-to-Ebitda ratio of less than one time. The average S&P 500 company operates closer to two times. AAR is also a consistent generator of free cash flow\u2014some $32 million in calendar year 2023. <\/p>\n

The outlook and strategy look promising for AAR, making shares a sound bet. Its earnings can grow, and its valuation can expand. That makes the stock a good way to play the continuing recovery in global air travel\u2014this year and beyond.<\/p>\n

Write to <\/strong>Al Root at allen.root@dowjones.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Air travel is still recovering, but there\u2019s no need to buy airline stocks to play it. Investors should buy AAR instead. AAR (ticker: AIR) isn\u2019t a household name, but every airline knows it because it sells used, repaired, and overhauled engine and airframe parts they need to keep their planes flying. The $2 billion company […]<\/p>\n","protected":false},"author":1,"featured_media":58934,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-58933","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nAir Travel Is Still Recovering. Buy AAR Stock. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Air travel is still recovering, but there\u2019s no need to buy airline stocks to play it. Investors should buy AAR instead. 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