We have maintained our long-term Neutral recommendation on
Illinois-based aerospace/defense products and services supplier
) on Oct. 8, 2013.
Why Kept at Neutral?
AAR has maintained a satisfactory competitive position through
its market expertise as well as technical and financial
capabilities across segments.
The company recently reported mixed first quarter fiscal 2014
results. Its bottom line surpassed the Zacks Consensus Estimate
driven by efficient cost management. However, a decline in sales
at the Technology Products division hurt the top line. Again,
sales to commercial customers declined 6.1% year over year during
the first quarter of fiscal 2014. The company however expects it
to return to growth in the second quarter of fiscal 2014.
Backed by operating strength and robust market demand, the
company expects Aviation Services segment revenue to grow year
over year in the second quarter. The company expects sales of
mobility products to remain flat with the prior year for the
balance of the fiscal. Moreover, the company's continued focus on
cost management and higher operational efficiency across several
of its businesses has and will continue to improve its margins.
The company has a strong balance sheet, which can help it to
expand its operations further. It reduced net debt by $109
million on a year-over-year basis in the first quarter of 2014.
Sales to branches, agencies and departments of the U.S.
government and their contractors were $763.2 million or 35.7% of
consolidated sales in fiscal year 2013. The company mainly
supplies products and services that support U.S. Department of
Defense logistics and mobility strategy and also offers
supplemental airlift services. Hence, the current political
impasse in the U.S. might have a negative impact on AAR's
On top of it, the company's government-related business could
continue to suffer if sequestration is enforced for an extended
Other Stocks to Consider
AAR Corp. currently has a Zacks Rank #4 (Sell). However, other
aviation companies like
Elbit Systems Ltd.
B/E Aerospace Inc.
Esterline Technologies Corp.
) are worth looking into now. While Elbit Systems sports a Zacks
Rank #1 (Strong Buy), B/E Aerospace and Esterline carry a Zacks
Rank #2 (Buy).
AAR CORP (AIR): Free Stock Analysis Report
B/E AEROSPACE (BEAV): Free Stock Analysis
ESTERLINE TECHN (ESL): Free Stock Analysis
ELBIT SYSTEMS (ESLT): Free Stock Analysis
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