We recently upgraded our recommendation on
) from Neutral to Outperform.
Things went in favor of AAR Corp. as after four straight
quarters of negative earnings surprises, the company reported a
decent 7.1% positive surprise in the first fiscal quarter of 2013
(ended August 2012).
Earnings per share in the first quarter came in at 45 cents, up
10% from the year-ago earnings and in line with the high-end of
management's guidance range of 42-45 cents. Revenue jumped 13% on
the back of strong commercial aviation services business.
Based on strong sales growth, operational efficiency and
enhanced product availability, management raised its fiscal 2013
earnings guidance to the $1.60-$1.70 range compared with the
$1.55-$1.65 range expected earlier.
Apart from its results, we find AAR Corp. well positioned to
benefit from the Defense and Airlift contracts, providing
value-added solutions for the U.S. Army, Navy and other foreign
governments. Moreover, the improved commercial air transport market
worldwide looks favorable due to increase in demand for the
company's products, especially maintenance and spare parts.
The company has also maintained a satisfactory competitive
position through its market expertise and technical/financial
capabilities across segments. In addition, the company's commitment
to returning value to shareholders through its timely disbursement
of dividends bode well for the stock.
Moreover, the company's competitive advantage over its peers
based on its market expertise and technical/financial capabilities
and strategic contract wins hold out promises for the future. These
positives more than offset concerns arising from stiff competition
and overcapacity in the aerospace market, margin pressures on
account of delayed aircraft availability, unscheduled maintenance
inspections and high fuel prices, and inadequate debt financing,
unfavorable aircraft lease agreement and currency fluctuations.
The company currently carries a Zacks #1 Rank, implying a
short-term Strong Buy rating. Its prime competitor
) has a Zacks # 3 Rank (Hold) while
Lockheed Martin Corporation
) holds a Zacks #1 Rank (Strong Buy).
AAR CORP (AIR): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis
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