The Cargo Systems division of AAR Corp. (AIR) has won a contract from Lockheed Martin Corporation (LMT) to produce and supply C-130 cargo handling systems and spares components for 30 Lockheed C-130 Hercules aircraft.
In the past, AAR Corp. has supplied a total of 1,280 such components to the C-130 aircraft worldwide.
In fiscal 2010, AAR Corp. received a supply chain services and logistics support contract for USAF’s KC-10 fleet, which became fully operational in the fourth quarter of fiscal 2010. This continuously helped in increasing revenue in the Government and Defense Services segment, which rose 82.0% year over year in the fourth quarter of fiscal 2010. In the first quarter of fiscal 2011 it reached $129.3 million from $36.3 million in the year-ago quarter.
AAR Corp.’s new products, equipment and methods will help it to achieve numerous contracts in future. Besides, the company is expected to perform well once the market recovers due to its industry leading supply chain and MRO positions coupled with its series of cost-reduction initiatives.
AR Corp. is also able to maintain a satisfactory competitive position through its unique combination of market expertise and technical and financial capabilities in each of its four reportable segments, which can also drive the company ahead of its competitors. The company’s direct competitor is Goodrich Corp. (GR).
For fiscal 2011, revenue is expected in the range of $1.5 to $1.6 billion and EPS within $1.25 to $1.40. The Aviation Worldwide Services acquisition, which added five aircraft to its fleet, is expected to be accretive to earnings and margins in fiscal 2011 and beyond.
It is anticipated to have a positive impact on the company’s fleet expansion too. The synergy benefits are yet to be priced and hence we expect a significant upside in the stock price in the future.
Thus, we reiterate our Outperform recommendation. The stock currently retains its short-term Buy rating (Zacks #2 Rank).
AAR CORP (AIR): Free Stock Analysis Report
GOODRICH CORP (GR): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
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