AIR
AAR Corp.
$140.80
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 110.8% above fair value
You pay
$140.80
Bear
$52.72
Fair
$66.78
Bull
$80.84
Bear
$52.72
-62.6%
$2.16 × 18x + net cash
Fair
$66.78
-52.6%
$2.16 × 22x + net cash
Bull
$80.84
-42.6%
$2.16 × 26x + net cash
Key Value Driver
Through-cycle normalized EPS ($2.16)
Implied Market Multiple
65.2x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $144.00 from 20 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $66.78 per share.
Warnings
This company has a built-in lending arm whose debt is mixed in with the main business. We capped the debt adjustment to avoid overstating what the core business owes.
Recent profits ($4.89/share) are 126% above the mid-cycle average ($2.16). Buying based on peak profits is the most common mistake with boom-and-bust businesses.
Price-to-book value of 6.7x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Wall Street's average price target is $144.00 (from 20 analysts). Our estimate is 72% below the consensus -- consider that gap carefully.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing