On Friday, Stifel financial firm adjusted its outlook on AAR Corporation (NYSE:AIR), a provider of aviation services, by reducing the price target slightly from $86.00 to $85.00, while still affirming a Buy rating for the company's shares. The revision follows AAR's fourth fiscal quarter report, which showcased adjusted earnings per share (EPS) of $0.88 on revenue of $657 million, surpassing Stifel's estimates of $0.79 EPS on $652 million in revenue.
The reported quarter marked a notable turnaround in government sales, which had previously declined by 7% year-over-year in the third fiscal quarter but surged to a 15% increase year-over-year in the fourth quarter. The quarter also represented AAR's initial period including contributions from TPS, a component repairs provider, which added approximately $73 million to sales, exceeding expectations.
Looking forward to the first fiscal quarter, AAR Corporation has provided guidance anticipating approximately 9% in adjusted operating margin and a 15-19% increase in sales. However, this forecast fell slightly short of Stifel's projections, suggesting an organic growth rate of around 4.5%, compared to the 5-10% compound annual growth rate (CAGR) anticipated over the longer term.
Despite some irregularities in the used serviceable material (USM) and government contract sectors, Stifel remains optimistic about AAR's multi-year earnings growth potential. The company's management has reaffirmed its 3-5 year targets, expecting an organic growth rate around the 7.5% midpoint and has raised the margin goal post-TPS acquisition to 12.5-13.5%+ on adjusted EBITDA.
In other recent news, AAR Corporation has been the focal point of various financial analysts due to its robust financial performance and strategic acquisitions.
RBC Capital Markets raised its price target for AAR Corp to $85, maintaining an Outperform rating, after the company reported adjusted earnings per share of $0.88 and adjusted operating margins of 9.3%. The firm also noted AAR Corp's impressive margin improvement trajectory, which is expected to continue until fiscal year 2024.
AAR Corp's acquisition of Triumph's Product Support business is expected to contribute an additional $280 million in annual sales and $51 million in operating profit. This acquisition, along with an anticipated 15% increase in heavy MRO capacity, is predicted to have a significant positive impact on the company's financial performance in FY26.
Analyst firms, including RBC Capital Markets, Stifel, and Benchmark, have given AAR Corp "Buy" and "Outperform" ratings, reflecting their confidence in the company's future growth. However, potential challenges in fiscal 3Q24 and operational risks associated with integrating acquisitions like Triumph could temper AAR Corp's growth trajectory.
InvestingPro Insights
Following Stifel's recent update on AAR Corporation, InvestingPro provides additional insights into the company's financial health and stock performance. AAR's current market capitalization stands at $2.55 billion, with a high Price-to-Earnings (P/E) ratio of 42.8, indicating that investors may be expecting higher future earnings growth. However, the company's earnings multiple is more favorable when looking at the adjusted P/E ratio for the last twelve months as of Q3 2024, which is 31.18, reflecting a more reasonable valuation in light of recent earnings.
InvestingPro Tips highlight that AAR's stock price has experienced significant volatility, which investors should consider when evaluating the company's risk profile. On a brighter note, the company's liquid assets exceed its short-term obligations, suggesting a solid liquidity position. Additionally, with moderate levels of debt, AAR operates with financial stability. Analysts on InvestingPro also predict that AAR will be profitable this year, a sentiment supported by the company's profitability over the last twelve months.
For those looking to delve deeper into AAR Corporation's financials and stock analysis, InvestingPro offers a wealth of additional tips. To explore these insights and make informed investment decisions, readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With 5 more InvestingPro Tips available, investors can gain a comprehensive understanding of AAR's potential and performance.
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