On Thursday, Citi updated its outlook on AerCap Holdings (NYSE:AER), raising the price target to $117.00 from $113.00. The firm reaffirmed its Buy rating on the stock, signaling confidence in the aircraft leasing company's financial prospects.
The revision in the price target reflects Citi's positive expectations for AerCap, including stronger anticipated lease rates and a modest increase in leasing expenses for the years 2025 and 2026. The analyst also factored in the third-quarter results of 2024 into the updated financial model for AerCap.
Citi's earnings per share (EPS) estimates for AerCap have been adjusted to account for these changes. The new forecasts are $11.63 for the current year, up from the previous estimate of $11.40. For the following years, the estimates are $13.18 and $14.28 for 2025 and 2026, respectively, marking an increase from the earlier projections of $12.75 and $13.77.
The basis for the price target adjustment is the application of an 8.9x multiple to the slightly higher projected EPS for 2025. This calculation method has led to the increase in the target price for AerCap shares, as stated by Citi.
In the analyst's commentary, AerCap was identified as Citi's preferred choice within the global aircraft lessor sector. The firm's outlook suggests a positive trajectory for AerCap's financial performance in the coming years.
In other recent news, AerCap Holdings NV has been in the spotlight due to its strong financial performance in the third quarter of 2024. The aircraft leasing company reported an adjusted net income of $463 million, or $2.41 per share, and a record operating cash flow of $5.6 billion over the past twelve months. With a fleet utilization rate of 99%, the highest since the pandemic, and a 27% unlevered gain on asset sales, AerCap raised its full-year earnings guidance to approximately $10.70 per share.
The company also declared a quarterly dividend of $0.25 per share and announced a new $500 million share repurchase authorization. Despite delivery delays from Boeing (NYSE:BA) and Airbus impacting its fourth-quarter delivery expectations, AerCap maintains a strong liquidity position with approximately $23 billion in sources and a leverage ratio of 2.4 to 1. The company's resilience is further reflected in its decision to reduce its exposure to the Chinese market from 21% to 13.5% over three years.
In the light of these recent developments, AerCap expects its robust performance to continue into 2025, driven by inflation in asset values and effective maintenance management. The company also anticipates that aircraft lessors will gain market share from OEMs and airlines due to a shift in airlines' capital allocation strategies. However, it is also worth noting that AerCap took a $140 million credit loss provision against Azul, a legacy COVID receivable, but no further financial impact is anticipated.
InvestingPro Insights
AerCap Holdings (NYSE:AER) has been demonstrating strong financial performance, aligning with Citi's positive outlook. According to InvestingPro data, the company's revenue for the last twelve months as of Q3 2024 stood at $7.82 billion, with a revenue growth of 4.5%. This growth is complemented by an impressive gross profit margin of 57.97%, showcasing AerCap's operational efficiency.
InvestingPro Tips highlight that AerCap has been aggressively buying back shares, indicating management's confidence in the company's value. Additionally, the company boasts a high shareholder yield, which could be attractive to investors seeking returns. These factors, combined with AerCap's trading at a low earnings multiple (P/E ratio of 7.19), support Citi's Buy rating and increased price target.
It's worth noting that AerCap's stock has shown a strong performance, with a 51.97% price total return over the past year. This aligns with Citi's positive outlook and increased EPS estimates for the coming years.
For investors seeking more comprehensive analysis, InvestingPro offers 8 additional tips for AerCap, providing a deeper understanding of the company's financial health and market position.
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