In this article, we will look at the 10 Undervalued Aerospace Stocks To Buy According to Analysts.
The International Aerospace and Defense industry
The aerospace and defense industry is a fast-growing industry, mainly because of the increased global travel after the pandemic and increased geopolitical tensions, which has led to increased government spending on defense. According to Research and Markets, the global aerospace and defense industry was valued at $884 billion in 2023. The industry is expected to grow at a compound annual growth rate of 5.8% to reach $1.23 trillion by 2028. Growth in the sector pertains to the rise in military modernization and increased defense spending. Whereas, increased spending on air travel is contributing to the growth in the commercial aerospace industry.
Geopolitics and Increased Spending on Defense
The world has been in a straight of turmoil, with geopolitical tensions leading to wars. While war and geo-political tensions are a dealbreaker for many industries, for the aerospace and defense companies the story is different. One of the key drivers of revenue for such companies is government contracts for military-grade aircraft, weapons, and defense systems. Thereby, with increased risks of war, defense spending goes up and aerospace and defense companies land more contracts.
According to a report by CNBC on April 22, global military spending hit an all-time high in 2023 after a 7% ramp-up. The global military spending was at a record high of $2.4 trillion last year. One of the key drivers of increased defense spending has been the prolonged Russia-Ukraine conflict and the recent tensions between Israel and Palestine. During the previous year the United States, China, and Russia were noted to be the biggest military spenders.
According to the U.S. Department of Defense, the government has $2.09 trillion in budgetary resources and plans to spend $972.88 Billion during 2024, out of which $229.80 billion is designated for award obligations. This indicates increased business opportunities for aerospace and defense companies during the year.
Upcoming Trends in the Aerospace Industry
According to a survey conducted by McKinsey & Company, AI-powered advancements can reshape aircraft maintenance, repair, and overhaul, however, companies need to accept the digital transformation.
Aircraft fleet management is a challenging sector. In the US alone, airline companies have witnessed a 15% increase in maintenance costs during the past 5 years. Moreover, there has been a 14% increase in flight delays due to maintenance.
The maintenance, repair, and overhaul (MRO) can be optimized using AI-powered solutions that allow better performance and improve efficiency. For Instance, AI-powered MRO can predict proper maintenance needs for an aircraft and the labor, material, and time needed for the maintenance. However, to leverage the power of AI, maintenance companies would have to become comfortable with adapting to new technologies and deal with the status quo disruption. The survey by McKinsey & Company found that only 33% of their respondents believed digital adoption to be critically important in achieving organizational objectives. Whereas 70% believed it could become critically important in the next 3 to 5 years, indicating hesitation towards immediate adoption of AI-powered solutions in the MRO sector.
Now that we have discussed the international aerospace and defense industry, let’s look at the 10 undervalued aerospace stocks to buy according to analysts.
An airplane hangar filled with components, showing the enormous scale of the company’s maintenance & overhaul services.
Our Methodology
To compile the list of 10 undervalued aerospace stocks to buy according to analysts we used the Finviz stock screener and iShares U.S. Aerospace & Defense ETF. We aggregated a list of stocks that operated in the aerospace and defense industry and filtered stocks that had a forward P/E ratio of less than 22 and a positive earnings growth rate. These stocks are cheaper than the market, which currently has a forward P/E of 22 (according to data from WSJ).
Once we had our filtered list, we ranked these stocks based on the average price target upside as per Wall Street analysts. The stocks are ranked in ascending order of the average price target upside as of August 15, 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Undervalued Aerospace Stocks To Buy According to Analysts
10. Northrop Grumman Corporation (NYSE:NOC)
Average Price Target Upside as of August 15: 1.39%
Forward P/E as of August 15: 20
Northrop Grumman Corporation (NYSE:NOC) is a leading aerospace and defense technology company, with a portfolio of Aeronautics Systems, Defence Systems, Mission Systems, and Space Systems. The defense premier company designs and manufactures an array of aerospace technology ranging from aircraft, and drone systems, to sophisticated satellites and missile systems. Its aviation technology and defense systems are sold to the US government and allies.
Defense and aerospace is a long-cycle business, where new products and projects can take years to generate revenue. However, Northrop Grumman Corporation (NYSE:NOC) has done well to align its business with the US government and its allies. The company has been developing the B-12 bomber and the Sentinel program, which is near completion and is expected to contribute significant growth.
Northrop Grumman Corporation (NYSE:NOC) posted a successful second quarter of 2024, with net sales increasing 7% year-over-year to $10.2 billion on the back of strong growth in all four segments. Aeronautics technology contributed the most to growth with net sales growing 14% year-over-year to reach $2.96 billion.
Not only has the company improved its net sales, but has a strong second-quarter backlog of $83.1 billion indicating sustained profitability. What’s more notable is Northrop Grumman Corporation’s (NYSE:NOC) ability to improve its operational income across all segments. The consolidated operating income for the quarter improved 5% to reach $1.1 billion.
As a result of improved performance across all business segments and a diverse portfolio of matured production programs ready to deliver revenue, the company has improved its 2024 guidance. Northrop Grumman Corporation (NYSE:NOC) now expects sales between $41.0 billion to $41.4 billion and adjusted EPS of $24.90 to $25.30.
Northrop Grumman Corporation (NYSE:NOC) is cheap at current levels. It is trading at 20 times its forward earnings, while the market forward P/E is 22. Moreover, the earnings of the company are also expected to grow 4% during the year to reach $6.48. 25 analysts have a consensus buy opinion on the stock with their 12-month median price target of $512 presenting an upside of 1.39% from the current level.
Carillon Eagle Growth & Income Fund stated the following regarding Northrop Grumman Corporation (NYSE:NOC) in its fourth quarter 2023 investor letter:
“Northrop Grumman Corporation (NYSE:NOC) pulled back in November following very strong performance in October that was tied to solid earnings and heightened geopolitical issues that included the war in Israel. While geopolitical issues remained front and center in November, tensions did not broaden to other areas through the end of the year.”
9. General Dynamics Corporation (NYSE:GD)
Average Price Target Upside as of August 15: 11.67%
Forward P/E as of August 15: 20
General Dynamics Corporation (NYSE:GD) is a prominent aerospace and defense company based in the United States. The company has grown to become one of the largest defense contractors in the world and operates through four main business segments including Aerospace, Marine Systems, Combat Systems, and Technologies. It sells its military-grade technologies to support national securities and military operations around the world.
The competitive edge of General Dynamics Corporation (NYSE:GD) lies in its diverse portfolio of products and its ability to grow its revenue by double digits while improving its operating margins. The company posted a strong second financial quarter of 2024. Its revenue increased 18% year-over-year to reach $11.98 billion driven by strong performance across all business segments.
The aerospace segment remained one of the key contributors to growth, with revenue growing a solid 51% year-over-year to reach $2.94 billion. Growth in this segment was backed by increased new aircraft deliveries coupled with higher service revenues. The company delivered 37 aircraft during the quarter, including 11 newly certified G700s.
What’s impressive about General Dynamics Corporation (NYSE:GD) is its robust performance in achieving higher operating margins, while growing its total order backlog to $91.3 billion. The company improved its operating earnings by 20.2% and operating margins by 20 bps year-over-year, indicating strong operational efficiency.
Is General Dynamics Corporation (NYSE:GD) currently undervalued?
General Dynamics Corporation (NYSE:GD) is one of the best undervalued aerospace stocks to buy according to analysts. It is trading at 20 times its forward earnings while the market average sits at 22. Moreover, its earnings are forecasted to grow by 28% during the year to reach $4.67. 27 analysts have a strong buy rating on the stock, with their 12-month median price target of $328 presenting an upside of 11.67% from the current level.
8. Leidos Holdings, Inc. (NYSE:LDOS)
Average Price Target Upside as of August 15: 13.68%
Forward P/E as of August 15: 16
Leidos Holdings, Inc. (NYSE:LDOS) is a leading technology company that provides defense, health, intelligence, and civil services technology to government agencies such as the Department of Defense and NASA, as well as international allies of the United States. The Defense Solutions segment provides advanced technology systems to support military operations across air, land, sea, space, and cyber security. Moreover, the company also provides air navigation systems to the Federal Aviation Administration and develops technologies that help control air traffic.
The strength of Leidos Holdings, Inc. (NYSE:LDOS) lies in its ability to drive strong organic growth and that too while maintaining high margins. During the second quarter of 2024, the company grew its revenue by 7.7% year-over-year to reach $4.13 billion. Although the revenue growth was backed by a robust performance across the board, however, the Health and Civil segment remained the strongest contender with revenue for the segment growing more than 22% year-over-year.
While revenue increase is impressive, what’s more notable is the company’s adjusted EBITDA margins which grew 260 base points to reach 13.5% during the quarter. Moreover, the adjusted EBITDA also increased to its record high of $559 million improving 33% from the previous year.
Management has been dedicated to delivering promises to its shareholders. It has significantly cut expenses and has stayed focused on robust cash flow. During the quarter Leidos Holdings, Inc. (NYSE:LDOS) generated a strong operating cash flow of $374 million and was able to maintain a strong liquidity position with more than $777,000 in cash and cash equivalents.
Leidos Holdings, Inc. (NYSE:LDOS) is cheap at current levels. It is trading at 16 times its forward earnings, which is a 12% discount to its sector. Moreover, its earnings are also forecasted to grow by 7% during the year to reach $2.12. 17 analysts have a strong buy rating on the stock, with their 12-month median price target of $167.5 presenting an upside of 13.68% from the current level.
Wedgewood SMID Cap Strategy made the following comment about Leidos Holdings, Inc. (NYSE:LDOS) in its Q1 2023 investor letter:
“Top performance detractors for the quarter include First Republic Bank, Texas Pacific Land, Leidos Holdings, Inc. (NYSE:LDOS), Helen of Troy and IAA. Finally, and unfortunately—as we’ve discussed in these letters previously in commentary on Leidos – it appears a new Cold War may be emerging, and we believe this will spur long-term demand for the U.S. military, industrial, and energy industries, as we already have seen on the energy front, especially, with exports to European allies rising significantly since Russia’s invasion of Ukraine.”
7. L3Harris Technologies, Inc. (NYSE:LHX)
Average Price Target Upside as of August 15: 13.69%
Forward P/E as of August 15: 17.5
L3Harris Technologies, Inc. (NYSE:LHX) is an advanced technology company that operates in the aerospace and defense industry. The company focuses on key business segments including, Integrated Mission Systems, Space and Airborne Systems, Communication Systems, and Aerojet Rocketdyne. L3Harris Technologies, Inc. (NYSE:LHX) sells its technologies to governments and private customers around the globe.
The company posted a successful second quarter of 2024, with revenue growing 13% year-over-year to reach $5.3 billion during the quarter. The revenue growth was mainly on the back of strong performance in the Communication and Aerojet Rocketdyne segments, both contributing $1.35 billion and $581 million to the consolidated revenue, respectively. What sets L3Harris Technologies, Inc. (NYSE:LHX) ahead of its competition is its international mix and margin opportunities. Over the past year, the company has been able to improve its operating income by 19% to reach $400 million and its margins have improved by 50 bps, indicating operational efficiency and profitability of its business.
The Space and Airborne Systems segment improved its operational margins by 280 base points to 12.6%. Moreover, management has also initiated its LHX NeXt initiatives, which focus on increasing cost competitiveness and driving operational agility.
The strong market demand for L3Harris Technologies, Inc. (NYSE:LHX) products can be estimated by its ability to land new awards worth more than $5 billion over the quarter. These new awards resulted in a strong order backlog of $32 billion indicating robust growth for upcoming quarters.
Capitalizing on its strong business presence the company has increased its revenue guidance to $21.0 billion – $21.3 billion (the previous range was $20.8 billion to $21.3 billion). Moreover, L3Harris Technologies, Inc. (NYSE:LHX) is also cheap at current levels as it is trading at 17.5 times its forward earnings, while the market sits at a forward P/E ratio of 22. The company’s earnings are also expected to rise by 4% during the year to reach $3.48. 27 analysts have a consensus buy rating on the stock, with their median price target of $257 presenting an upside of 13.69% from the current level.
Diamond Hill Mid Cap Strategy made the following comment about L3Harris Technologies, Inc. (NYSE:LHX) in its Q3 2023 investor letter:
“L3Harris Technologies, Inc. (NYSE:LHX) is a defense contractor focused primarily on communications, surveillance and electronic warfare. We anticipate the US’s defense budget will be better than expected over the next few years as the Defense Department focuses on preparing for peer-level threats — an area in which LHX’s capabilities fit nicely. We believe there is room for improvement in recent execution — particularly at recently acquired Aerojet Rocketdyne — and we think LHX’s new management team is well-qualified to improve results. We accordingly capitalized on a recent share-price decline to initiate a position at what we consider a compelling valuation.”
6. Honeywell International Inc. (NASDAQ:HON)
Average Price Target Upside as of August 15: 14.37%
Forward P/E as of August 15: 19
Honeywell International Inc. (NASDAQ:HON) is one of the undervalued aerospace stocks to buy according to analysts. It operates as a diversified technology company that manufactures and sells Aerospace, Performance Material, Building Technologies, and Safety and Productivity technologies in the United States and internationally.
The Aerospace segment of the company provides aircraft engines, avionic technologies, auxiliary power units, and other related products for commercial and defense purposes. It also provides a wide range of sensors used in developing sophisticated aircraft systems. The competitive edge of the company lies in its ability to generate record revenues from a diverse portfolio of products catering to a range of industries.
Honeywell International Inc. (NASDAQ:HON) exceeded analyst expectations by posting a robust second quarter of 2024. The company grew its sales by 4% year-over-year to reach $9.6 billion in revenue, ahead of analyst expectations of $9.4 billion. The Commercial Aerospace, Defense, and Space segment of the company was a strong contender and delivered the 13th consecutive year of double-digit growth. The segment grew 16% year-over-year delivering $3.9 billion in organic sales.
Not only did the company improve its order backlog by 5% to reach a record high of $32 billion, but it was also able to complete strategic acquisitions to boost its technologies and offerings across the board. Some of the notable acquisitions include Air Products LNG and CAES, a pioneer in advanced electronics.
Should you invest in Honeywell International Inc. (NASDAQ:HON)?
Honeywell International Inc. (NASDAQ:HON) can be a good investment and we don’t say this based on a single-quarter performance. If you look at the company’s past 3 year’s performance, you will find it has been able to grow its revenue by 3.21% and net income by 6.09% indicating robust fundamentals. Moreover, despite acquiring two companies, recently, it was able to maintain its free cash low flat at $1.1 billion.
The company is trading at 19 times its forward earnings, while the market average sits at 22. Moreover, its earnings are expected to grow by 8% during the year to reach $2.81. 26 analysts have a consensus buy opinion on the stock with their 12-month median price target of $226 presenting an upside of 14.37% from the current level.
5. KBR, Inc (NYSE:KBR)
Average Price Target Upside as of August 15: 19.54%
Forward P/E as of August 15: 20
KBR, Inc. (NYSE:KBR) provides innovative science and technology solutions to governments and businesses worldwide. It operates through two main business segments including Government Solutions and Sustainable Technology Solutions. Under the Government Solutions segment, the company provides life cycle support for defense, intelligence, space, aviation, and other government programs. Its services include research, prototyping, systems engineering, and other related services. KBR, Inc. (NYSE:KBR) also operates a portfolio of proprietary process technologies for ammonia/syngas, chemicals, clean refining, and circular economy solutions.
To understand how KBR, Inc. (NYSE:KBR) provides utility in the aerospace and defense industry, it is important to look at some of its products. For instance, the company developed Iron Stallion, a system that helps track the movement of objects in space. The system helps national security agencies track and predict the movements of airborne objects.
The company posted a successful second quarter of 2024. Its revenue grew 6% year-over-year to reach $1.9 billion. Revenue growth was supported by improvements in both segments, however, the Sustainable Technologies Solutions segment grew 14% year-over-year as compared to the Government Solutions segment which grew only 3%. The Sustainable Technology segment also delivered strong adjusted EBITDA growth of 23%, mainly attributed to a favorable revenue mix and milestone licensing throughout the quarter.
One of the notable wins within the Government Solutions segment was an $8 million IAC MAC contract by the United States Air Force Life Cycle Management Center. In addition to this KBR, Inc. (NYSE:KBR) was also able to maintain a robust backlog of $16.2 billion at the quarter end.
KBR, Inc. (NYSE:KBR) is undervalued. It is trading at 20 times its forward earnings while the market average sits at 22. Moreover, its earnings are also expected to grow by 17% during the year to reach $0.81. 12 analysts have a strong buy rating on the stock, with their median price target of $77.5 presenting an upside of 19.54% from current levels.
Cove Street Capital Small Cap Value Fund stated the following regarding KBR, Inc. (NYSE:KBR) in its Q2 2024 investor letter:
“On the plus side, KBR, Inc. (NYSE:KBR) has been a strong performer so far YTD on the back of an investor day in the second quarter that highlighted the success of the last four-year plan (2020-2023) before laying out ambitious but credible targets for the next 4 years (2024- 2027). Since 2020, KBR has pivoted their commercial business away from high-risk EPC projects to a more differentiated IP-first consulting approach that now sees 20% EBIT margins and contributes 40% of their overall profitability. KBR has cleaned up their balance sheet by settling convertible notes and warrants and now sits at a healthy 2x net leverage. With the upcoming ramp of a $20B government services contract with the U.S. army, the company is well positioned to generate cash and return value to shareholders.”
4. Textron Inc. (NYSE:TXT)
Average Price Target Upside as of August 15: 20.36%
Forward P/E as of August 15: 14
Textron Inc. (NYSE:TXT) is a diversified global aerospace and defense company. The company operates through various segments including Textron Aviation, Bell, Textron Systems, Industrial, and Textron eAviation. Textron Inc. (NYSE:TXT) is known for its aircraft, helicopters, and military-grade vehicles. It serves both government agencies and commercial customers.
The competitive edge of Textron Inc. (NYSE:TXT) lies in the strong brand recognition of the company and its extensive product mix that allows the company to generate revenue from multiple streams. Utilizing its robust portfolio, especially its Aviation segment, the company has been able to grow its top line by 4% and its bottom line by 10% during the past 3 years.
The second quarter of 2024, proved to be a success for the company. Textron Inc. (NYSE:TXT) was able to grow its revenue to $3.5 billion from $3.4 billion last year. Its Aviation business witnessed the strongest growth as the company delivered 44 commercial turboprops and 42 jets during the quarter. As a result, the revenue for the segment grew 8.3% year-over-year to reach $1.5 billion and generated $195 million in profits. Looking ahead the segment continues to see increased demand as the quarter ended with $7.5 billion in backlog, up $118 million from the previous quarter.
Management of Textron Inc. (NYSE:TXT) has been active in improving its product portfolio through strategic acquisitions. During the quarter, the company acquired Amazilia Aerospace, which has expertise in digital flight controls and flight guidance. Management plans to integrate the expertise and products of Amazilia Aerospace to its new platforms such as Nuuva and Surveyor.
With a 32% subsequent increase in the manufacturing cash flow of the company from $242 million to $320 million and a robust backlog, the company is poised for growth. Textron Inc. (NYSE:TXT) is undervalued as per the analysts. It is trading at 14 times its forward earnings, which is a 27% discount to its sector. Meanwhile, the analysts expect its earnings to grow by 24% during the year to reach $1.99.
19 analysts have a consensus buy rating on the stock, with their 12-month median price target of $103.5 presenting an upside of 20.36% from current levels.
3. Ducommun Incorporated (NYSE:DCO)
Average Price Target Upside as of August 15: 21.37%
Forward P/E as of August 15: 20
Ducommun Incorporated (NYSE:DCO) is an international manufacturing and engineering services company that develops innovative electronics and structural solutions with applications in aerospace, defense, and industrial markets. The company operates through two main segments, namely Electronics Systems and Structural Systems. It sells its products to commercial customers including aircraft manufacturers and government agencies such as NASA.
The competitive advantage of Ducommun Incorporated (NYSE:DCO) stems from its years of experience in the business. The company stands as one of the oldest companies in California with over 175 years of experience in the aerospace and defense market. Looking at the past 5 years, Ducommun Incorporated (NYSE:DCO) has been able to grow its revenue by 2.77% and net income by 2.61%, indicating robust foundations.
During the most recent quarter, the Q2 of 2024, Ducommun Incorporated outperformed analyst expectations and posted robust growth. The revenue of the company grew 5.2% year-over-year to reach $197 million beating analyst expectations by 1.1%. Non-GAAP earnings per share were $0.83, ahead of market consensus by 36.6%. Revenue growth was backed by strong performance in the Commercial Aerospace and Military segments. The quarter also marked the fourth consecutive quarter with revenue exceeding $190 million indicating a robust and sustained demand for its products.
In addition to revenue growth, the company was also able to grow its backlog to $1.07 billion, a 5.7% increase year-over-year. Indicating successful upcoming quarters. The margins of Ducommun Incorporated (NYSE:DCO) also increased with EBITDA margins at 15.2%, up from 13.9% last year and gross margins at 26%, increasing 4.3% year-over-year.
DCO has experienced a slowdown in MAX build rates, however, it is well-positioned to take advantage as soon as the build rates ramp back up. Management believes if Boeing reaches a production rate of 38 MAX aircraft by the end of 2024, as per their recent communications, it will provide a major boost to DCO’s performance
DCO is cheap at current levels, it is trading at 20 times its forward earnings while the sector average sits at 22%. Moreover, its earnings are expected to grow by 34% during the year to reach $0.94. 4 analysts have a strong buy rating on the stock, with their median price target of $76 presenting an upside of 21.37% from current levels.
Cove Street Small Cap Value Fund stated the following regarding Ducommun Incorporated (NYSE:DCO) in its first quarter 2024 investor letter:
“We sold our position in Ducommun Incorporated (NYSE:DCO) this quarter. We like the aerospace and defense world and think the company has a solid conceptual runway to participate in niche programs on both sides of the industry. But we have concluded we just cannot stomach the management team, which refuses to recognize quaint ideas like “value creation PER SHARE,” the generation of free cashflow vs. a focus on revenue growth, and the idea that shareholders are partners that deserve transparent financials with which to judge performance and progress.”
2. V2X, Inc. (NYSE:VVX)
Average Price Target Upside as of August 15: 29.21%
Forward P/E as of August 15: 11.7
V2X, Inc. (NYSE:VVX) provides essential mission solutions and support services for government defense agencies around the world. It operates through four main business segments namely, Operations and Logistics, Aerospace, Training, and Technology. V2X, Inc. (NYSE:VVX) provides various base management services to the Air Education Training Command in the US. It also provides life cycle support for advanced aircraft such as the F/A 18 and V22 Osprey. The company serves national security agencies and commercial clients in the international market.
The second quarter of 2024 was a success for V2X, Inc. (NYSE:VVX). The company increased its revenue by 10% year-over-year to generate $1.07 billion during the quarter. It also landed awards worth more than $4 billion including a $265 million award to support NASA’s operations in preparation for human spaceflight missions, and a $747 million Adversarial Aircraft program to support the advancement of US Navy pilots. Moreover, the company will also be spearheading the next-generation readiness award valued at more than $3 billion.
In addition to a strong performance in the top line, the company was also able to generate an adjusted EBITDA of $72.3 million and an adjusted earnings per share of $0.83 during the quarter. The strong market demand for V2X, Inc. (NYSE:VVX) products and services can be gauged by its strong backlog of $12.2 billion representing approximately 3x revenue at the midpoint of guidance.
Management has also raised its full-year guidance with revenue at $4.175 billion to $4.275 billion (the previous range was $4.1 billion to $4.2 billion) and reaffirmed its adjusted EBITDA guidance of $300 million to $315 million. Lastly, V2X, Inc. (NYSE:VVX) has around $72 million in cash and cash equivalents, indicating significant room for short-term investments.
VVX is cheap at current levels. It is trading at 11.7 times its forward earnings, a 37% discount to its sector. Moreover, its earnings are also expected to grow from -$0.01 to $0.54 during the year. 6 analysts have a strong buy rating on the stock, with their median price target of $61 presenting an upside of 29.21% from current levels.
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’.
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