AIR
AAR Corp.
$98.29
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 106.8% above fair value
You pay
$98.29
Bear
$38.88
Fair
$47.52
Bull
$56.16
Bear
$38.88
-60.4%
$2.16 × 18x
Fair
$47.52
-51.7%
$2.16 × 22x
Bull
$56.16
-42.9%
$2.16 × 26x
Adjust Assumptions
22.0x
2.16$
Key Value Driver
Through-cycle normalized EPS ($2.16)
Implied Market Multiple
45.5x
Analyst Consensus (External Reference)
Never blended into the bear/base/bull estimates above.
Average Target (20 analysts)
$150.00
Divergence from AlphaVal
68%
Summary
Using 7-year normalized EPS of $2.16 at a 22x cycle multiple, the base-case value is $47.52 per share. P/TBV cross-check: 4.7x.
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 4.7x 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 $150.00 (from 20 analysts). Our estimate is 68% 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