1. AAR Corp. (NYSE:AIR)
Average Price Target Upside as of August 15: 38.41%
Forward P/E as of August 15: 14
AAR Corp. (NYSE:AIR) is a key player in the aviation and defense sector. It provides essential services that keep the aircraft flying and operational. The company operates through various segments namely, Parts Supply, Repair $ Engineering, Integrated Solutions, and Expeditionary Services. AAR Corp. (NYSE:AIR) operates internationally and serves commercial airlines, government entities, and military agencies.
The strategic edge of the company lies in its position in the industry, as the services and parts provided by AAR Corp. (NYSE:AIR) are necessary for both commercial customers and government agencies. This translates to high demand for the company’s products and its ability to generate revenues. Over the past 3 years AAR Corp. (NYSE:AIR) has been able to grow its revenue by 12% and its net income by 9%.
The company posted robust growth in the fourth quarter of 2024. AAR Corp. (NYSE:AIR) revenue grew 19% to $657 million driven by additional government contract volumes, market share gains, and increased demand from consumers. The company also improved its operating margins from 7.3% last year to 8.3% in fiscal 2024, making it a record year for the company.
During fiscal 2024, full-year sales improved 17% reaching $2.3 billion and its adjusted earnings per share gained 16% benefiting from structural tailwinds and growth in air travel. Management now eyes 2025 for future growth and expects revenue growth between 15% to 19% and operating margins at 9%.
What sets the company apart from its competition is its growing market share. Management indicated its plans to expand its distribution in the APAC region and Japan and also plans to explore the Asian market.
AIR is undervalued at current levels. It is trading at 14 times its forward earnings while the market average sits at 22. Moreover, its earnings are also expected to grow by 14% during the year to reach $0.92. 5 analysts have a strong buy rating on the stock, with their 12-month median price target of $85 presenting an upside of 38.41% from current levels.
Mairs & Power Small Cap Fund made the following comment about AAR Corp. (NYSE:AIR) in its Q3 2023 investor letter:
“Relative outperformance in the period came from AAR Corp. (NYSE:AIR). AAR Corp. (AIR), a supplier of parts and maintenance/repair services to the airline industry, is benefiting from a rebound in air miles traveled, and driving margins higher for the company.”
While we acknowledge the potential of AR Corp. (NYSE:AIR) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure. None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
