AAR CORP. (AIR) continues to benefit from an improving commercial airline environment.
The company recently delivered its 4th consecutive positive sales surprise and 8th consecutive positive earnings surprise. This prompted analysts to raise their estimates, sending the stock to a Zacks #2 Rank (Buy) stock.
AAR also resumed paying its dividend after a near 9-year break. This is a sign that management is confident in the future prospects of the company.
Company Description
AAR CORP provides products and services to the aerospace and government and defense industries. The company operates in four segments. Sales for the first nine months of fiscal 2011 were distributed as follows:
Aviation Supply Chain: 25%
Government and Defense Services: 32%
Maintenance, Repair and Overhaul: 22%
Structures and Systems: 21%
Third Quarter Results
AAR reported solid third quarter 2011 results on March 15. Sales for the quarter were $451.0 million, a 50% increase year-over-year, and ahead of the Zacks Consensus Estimate of $443.0 million.
While much of the increase was due to the acquisition of Airlift Group, organic sales growth was still very strong. Sales to commercial customers jumped 44% due to improved conditions for the airlines.
With the strong sales growth, AAR was able to leverage its operating expenses. For instance, selling, general and administrative expenses fell from 11.3% to 9.4% of total sales. Meanwhile, operating income grew 46%.
Earnings per share came in at 45 cents, beating the Zacks Consensus Estimate by 3 cents.
Outlook
Analysts raised their estimates for both 2011 and 2012 following the solid Q3 earnings beat. If consensus estimates materialize, AAR is in-line for some major earnings growth.
The 2011 Zacks Consensus Estimate is $1.68, 42% higher than 2010 EPS. The 2012 consensus estimate is currently $2.14, representing 27% EPS growth.
It is a Zacks #2 Rank (Buy) stock.
Fundamentals
Despite the strong growth projections, shares of AAR are trading at 15.3x forward earnings, a slight discount to the industry average.
Its PEG ratio is an attractive 0.9 based on a long-term growth rate of 17.5%.
After a near 9-year hiatus, AAR began paying a dividend again in April 2011. It currently yields 1.2%.
AAR CORP is headquartered in Wood Dale, Illinois and has a market cap of $968 million.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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