We have upgraded our recommendation on
AAR Corp.
(
AIR
) from Underperform to Neutral based on the company's strong sales
growth attributable to operational efficiency witnessed over the
last few quarters. Moreover, the company's favorable mix of
inventories, strategic tax planning strategies resulted in a
stronger balance sheet.
AAR Corp. is well positioned to benefit from the Defense and
Airlift contracts, providing value-added solutions for the U.S.
Army, Navy and other foreign governments. 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 maintained a satisfactory competitive position
through its market expertise and technical/financial capabilities
across segments. In addition, a strong aviation market in 2012 is
expected to reinvigorate the commercial air transport sector,
raising the company's sales volume for equipments and methods of
repair and overhaul services.
The company remains committed to shareholders through its timely
disbursement of dividends.
However, risk remains as the company operates in an adverse
commercial aerospace market of overcapacity. Further, the cyclical
demand situation among military flight operations may disrupt
smooth revenue flow in the long run.
The capital intensive industry, in which the company operates,
calls for continuous availability of debt and equity capital for
executing the company's business strategies. Thus, inability to
obtain financing on favorable terms would be harmful.
Mention may be made of continued margin pressures on account of
delayed aircraft availability, unscheduled maintenance inspections,
higher-than-expected start-up costs and cost overruns. These
factors along with huge oil price assumption continue to threaten
stock performance.
Moreover, the company is exposed to currency fluctuation due to
a widespread client base and operations beyond the U.S.
The company provides strong competition to its peers, such as
Goodrich Corp
(
GR
),
Boeing Co
(
BA
) and
Lockheed Martin Corporation
(
LMT
).
AIR carries a Zacks # 4 Rank, which translates into a short-term
(1-3 months) 'Sell' rating. The Zacks Consensus Estimate of
earnings per share for AAR Corp, for the fourth quarter of 2012, is
pegged at 48 cents.
AAR CORP (AIR): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis
Report
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