AAR Corp (AIR, Financial) has experienced a notable daily loss of 10.2%, yet its 3-month performance shows a gain of 5.93%. With an Earnings Per Share (EPS) of 1.9, the question arises: is AAR (AIR) modestly overvalued? This article delves into the valuation analysis of AAR Corp (AIR), guiding readers through an informed evaluation of the stock's current market position.
Company Introduction
AAR Corp (AIR, Financial) is a key player in the aviation, government, and defense markets, providing products and services through its two main segments: Aviation Services and Expeditionary Services. The Aviation Services segment focuses on aftermarket support and services for commercial and government/defense aircraft, while the Expeditionary Services segment offers products and services for the movement of equipment and personnel. With the majority of its revenue stemming from the Aviation Services segment, AAR Corp (AIR) is currently trading at $63.57 per share, boasting a market cap of $2.20 billion. This valuation prompts an evaluation against the GF Value, which estimates the stock's fair value at $54.07, suggesting that AAR may be modestly overvalued.
Summarize GF Value
The GF Value is a unique metric that gauges the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor for past performance, and future business performance estimates. When a stock's price significantly deviates from the GF Value Line, it indicates a potential overvaluation or undervaluation, affecting the expected future returns. In the case of AAR (AIR, Financial), the stock appears modestly overvalued, suggesting that its long-term return may not align with the company's business growth.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. AAR's financial strength is rated 7 out of 10 by GuruFocus, indicating a fair balance sheet despite a cash-to-debt ratio that ranks lower than 70.23% of its industry peers. This assessment is vital for investors considering stock purchase.
Profitability and Growth
Long-term profitability is a less risky proposition for investors, and AAR has demonstrated this with a decade of consistent profits. With a revenue of $2.10 billion and an Earnings Per Share (EPS) of $1.9, AAR's operating margin stands at 5.01%, reflecting fair profitability. Moreover, the company's growth is commendable, with its 3-year average EBITDA growth rate outperforming 81.12% of its competitors in the Aerospace & Defense industry.
ROIC vs WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is a key indicator of a company's profitability. AAR's ROIC of 6.25 is currently below its WACC of 10.84, suggesting that the company may not be creating value for its shareholders as efficiently as possible.
Conclusion
In summary, AAR (AIR, Financial) stock appears to be modestly overvalued. The company maintains fair financial health and profitability, with growth rates that are competitive within its industry. For a more detailed look at AAR's financials, interested parties can review the company's 30-Year Financials here.
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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.
