On Monday, UBS began its coverage of Standard Aero Inc (NYSE: SARO) stock, assigning a Neutral rating and setting a price target of $34.00. The firm recognized several positive attributes of the aerospace company, particularly its singular focus on the engine aftermarket sector and the potential for growth based on aging aircraft fleets and the current downturn in new aircraft deliveries.
Standard Aero, known for its engine maintenance and services for the aerospace industry, is positioned to benefit from key engine platforms such as LEAP and CFM56. According to UBS, these platforms alone could drive a 15% revenue increase by the year 2028.
Despite the potential for growth and favorable market conditions, UBS has taken a cautious stance due to the company's valuation. With Standard Aero's shares trading at 16.5 times the firm's estimated 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA), the current stock price is believed to already account for the anticipated multi-year expansion.
The price target of $34.00 reflects UBS's assessment of the company's prospects over the next 12 months, balancing the growth opportunities against the valuation concerns. The Neutral rating indicates that UBS does not see significant stock price movement for Standard Aero in the near term, relative to the market or its industry peers.
In other recent news, Standard Aero has been making significant strides in the aerospace engine aftermarket. The company has successfully completed its initial public offering (IPO), selling a total of 69 million shares at $24.00 per share. The proceeds, approximately $1.201 billion, were used to redeem all outstanding senior unsecured PIK toggle notes due 2027 and to partially repay the 2024 Term B-1 Loan Facility and the 2024 Term Loan B-2 Facility.
RBC Capital Markets and JPMorgan (NYSE:JPM) have both initiated coverage of Standard Aero with positive outlooks. RBC Capital gave the stock an Outperform rating with a price target of $37.00, citing Standard Aero's strong presence in the engine maintenance, repair, and overhaul (MRO) sector. JPMorgan also gave an Overweight rating and set a price target of $36.00, highlighting the company's efforts to expand capacity and services.
Both firms project a significant growth in the company's sales and margins over the coming years. RBC Capital Markets anticipates the company to be at the forefront of the most substantial engine MRO market, while JPMorgan forecasts a double-digit compound annual growth rate (CAGR) in sales from 2024 to 2027. These recent developments underline Standard Aero's growth trajectory and commitment to its strategic objectives.
InvestingPro Insights
Recent data from InvestingPro adds depth to UBS's analysis of Standard Aero Inc (NYSE: SARO). The company's revenue for the last twelve months as of Q2 2024 stood at $4.84 billion, with a quarterly revenue growth of 16.41% in Q2 2024. This aligns with UBS's projection of potential growth driven by key engine platforms.
However, InvestingPro Tips highlight some financial challenges. Standard Aero is not profitable over the last twelve months, with a basic EPS of -$0.05. The company also suffers from weak gross profit margins, which stood at 13.96% for the last twelve months as of Q2 2024. These factors may contribute to UBS's cautious stance on valuation.
InvestingPro Tips also indicate that Standard Aero is trading at high EBIT and EBITDA valuation multiples, corroborating UBS's observation about the stock's current pricing. For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Standard Aero's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.