AerCap Holdings N.V. (AER, Financial) is a Netherlands-based global lessor of aircraft and aircraft engines. The firm engages in leasing, financing, selling and managing commercial aircraft and engines in the United States, Russia and Germany.
Aircraft Leasing Subsidiary
This Dutch company agreed to pay $5.4 billion for 100% of American International Group Inc. (AIG) aircraft leasing subsidiary in a transaction that will be closed during the second quarter of 2014. To AerCap, whose main shareholder is Waha Capital, the purchase of AIG´s business segment is an opportunity to grow and position the firm as a leader in the rental business aircraft through leasing. “We’re creating the industry leader here,” Aercap Chief Executive Officer Aengus Kelly said.
Moreover, in 2009 the company bought Genesis Lease Ltd., acquiring a lease portfolio valued at $6 billion at the time, and added 53 aircraft. The company owns assets and has under management a total of $15 billion. In 2010, it completed the sale of a 20% stake to Waha Capital, having received $105 million in cash and full ownership of AerVenture, a joint venture between them.
Valuation
In terms of valuation, the stock sells at a trailing P/E of 16.2x, trading at a discount compared to an average of 17x for the industry. Analysts’ expectations imply a forward P/E of 14.22. To use another metric, its price-to-book ratio of 1.6x indicates a discount versus the industry average of 1.7x and the price-to-sales ratio of 4.1x is above the industry average of 1.1x.
Earnings per share (EPS) increased by 62.2% in the most recent quarter compared to the same quarter a year ago. Also, it has demonstrated a positive trend over the past 10 years. We include the stock price because EPS often leads the stock price movement.
Finally, I always like to see of one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: return on equity. The ratio has slightly decreased when compared to the same quarter one year ago. I have to emphasize this because it is a signal of weakness within the company. AerCap ROE of 10.41% is below the industry mean of 12.08% but is higher than Aircastle Ltd. (AYR, Financial), Air Lease Corp. (AL, Financial) and Apollo Investment Corp. (AINV, Financial).
| Ticker | Name | ROE |
| Average | 12,08 | |
| AER | AERCAP HOLDINGS NV | 10,41 |
| AYR | AIRCASTLE LTD | 0,74 |
| AL | AIR LEASE CORP | 7,22 |
| FLY | FLY LEASING LTD-ADR | 11,53 |
| GMT | GATX CORP | 11,48 |
| UHAL | AMERCO | 24,14 |
| CAP | CAI INTERNATIONAL INC | 19,48 |
| AINV | APOLLO INVESTMENT CORP | 7,73 |
Final Comment
AerCap's leasing business is expected to grow at a higher rate than it peers, aided by its recent acquisition. We expect an improvement in earnings, giving upside potential for the stock price.
Hedge fund guru Donald Smith added this stock to his portfolio, so I would advise fundamental investors to consider adding AerCap to their portfolios as it seems to be an attractive option.
Disclosure: Vanina Egea holds no position in any stocks mentioned.
