Taking a glance at AAR Corp (AIR, Financial)'s recent market performance, we see a daily loss of 5.94%, and a 3-month decline of 5.43%. With an Earnings Per Share (EPS) of $1.7, investors are contemplating whether AAR (AIR) is fairly valued. This article delves into the intricacies of AAR's valuation, providing investors with the insight needed to make an informed decision. Read on for a detailed analysis of AAR's intrinsic value and market position.
Company Introduction
AAR Corp, operating under the ticker AIR, is a prominent player in the aviation, government, and defense markets. With a primary focus on aftermarket support and services, AAR's Aviation Services segment is the cornerstone of its revenue generation. The Expeditionary Services segment complements this by catering to the logistical needs of the U.S. Department of Defense and allied entities. Currently, AAR's stock price hovers at $60.12, with a market capitalization of $2.10 billion. This positions AAR (AIR, Financial) in close alignment with its Fair Value (GF Value) of $57.53, suggesting a nuanced assessment of its true market value is necessary.
Summarize GF Value
The GF Value is a proprietary metric used to determine the fair value of a stock like AAR (AIR, Financial). It incorporates historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. If AAR's stock price significantly deviates from the GF Value Line, it may indicate an overvaluation or undervaluation. Currently, AAR (AIR) appears to be fairly valued, which implies that its long-term stock performance may align closely with the company's growth rate.
Financial Strength
Assessing the financial strength of a company is crucial before investing. AAR's cash-to-debt ratio of 0.19 places it below many of its industry peers, indicating a need for caution. Despite this, AAR's overall financial strength is rated a respectable 7 out of 10, suggesting that the company maintains a fair level of financial stability.
Profitability and Growth
Investing in consistently profitable companies is generally less risky. AAR has maintained profitability for the past decade, with a revenue of $2.20 billion and an EPS of $1.7 over the last twelve months. However, its operating margin of 6.27% suggests room for improvement when compared to industry standards. In terms of growth, AAR's 3-year average annual revenue growth rate is -1.4%, but its EBITDA growth rate of 24.5% is impressive, outpacing a majority of its industry counterparts.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its profitability and value creation. AAR's ROIC of 7.81 is currently below its WACC of 10.18, indicating that the company may not be generating sufficient returns on its investments.
Conclusion
In conclusion, AAR Corp (AIR, Financial) presents itself as a fairly valued entity in the marketplace. With fair financial health and profitability, alongside a growth rate that outshines many in the Aerospace & Defense industry, AAR demands consideration from investors. For those interested in a deeper dive into AAR's financials, a comprehensive review of its 30-Year Financials is available here.
To discover high-quality companies that may deliver above-average returns, be sure to explore the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
