Air Lease (AL, Financial) is one of my favourite stocks in the leasing industry along with AerCap Holdings (AER) and it is good to see the stock rally by 10.7% YTD. While the rally in the first two months of 2015 has been robust, I believe that there is a lot more juice left for the year. This article discusses the reasons to be bullish on Air Lease for 2015. I must mention here that even with an investment horizon of 3-5 year, Air Lease is an attractive investment option to consider.
The first point is that the company has grown at a robust pace in 2014 and I believe that strong growth will continue for the company in 2015. My statement is backed by the point that Air Lease expects delivery of 40 new aircraft in 2015 and all the aircraft have already been leased for long-term. Therefore, as soon as the aircraft are delivered, the cash flow from the aircraft addition will commence.
After a 32% EPS growth in FY14, I believe that EPS growth will again be robust in FY15 and analyst estimates do confirm my view. According to analyst estimates, Air Lease earnings growth is likely to be 15.3% and 16.9% in FY15 and FY16, respectively. For FY16, the earnings growth will come from an addition of another 32 aircraft to the company’s fleet. While the earnings growth will be lower than FY14, if the company can maintain 10% to 15% earnings growth for long-term, the stock will continue to trend higher.
I mentioned earlier that I am bullish on Air Lease as well as AerCap Holdings in the aircraft leasing industry. However, Air Lease has one advantage over AerCap Holdings with the company’s fleet age being just 3.5 years as compared to 5+ years for AerCap Holdings. A modern fleet coupled with the fleet that is scheduled for delivery in 2015 and 2016 are fuel efficient aircraft and these aircraft can secure a long-term lease compared to older aircraft. I therefore expect the company’s revenue visibility to improve in the coming 1-2 years. Even after 2016, Air Lease has consistent delivery of new aircraft until 2023.
From a debt perspective, the concern is low as Air Lease has been generating robust EBITDA numbers and debt servicing is not an issue as long as the lease term remains firm. Considering the point that all 40 aircraft to be delivered in 2015 are already leased, funding the delivery of the aircraft will not be an issue for the company. I expect all the deliveries in FY15 and FY16 to be debt funded.
Besides the company-specific points, it is important to note that the airlines industry in China (1.3 billion population) and India (1.2 billion population) is still booming and the long-term trend is on the upside in terms of aircraft growth in these countries. This will ensure that new aircraft are leased out relatively fast and the cash flow for Air Lease continues to expand.
In conclusion, Air Lease has strong growth lined-up for 2015 and 2016. While the stock has moved higher by 10% YTD, I believe that the rally will continue on the back of strong results in the coming quarters. This makes Air Lease an attractive investment option to consider.
