AIR
AAR Corp.
$108.41
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 124.1% above fair value
You pay
$108.41
Bear
$38.20
Fair
$48.38
Bull
$58.57
Bear
$38.20
-64.8%
$1.29 × 18x + net cash
Fair
$48.38
-55.4%
$1.29 × 22x + net cash
Bull
$58.57
-46.0%
$1.29 × 26x + net cash
Key Value Driver
Through-cycle normalized EPS ($1.29)
Implied Market Multiple
84.0x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $120.00 from 20 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $48.38 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.
Price-to-book value of 9.3x 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 $120.00 (from 20 analysts). Our estimate is 80% 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