Support From Development Bank Of Japan And ConstantThrust Program Will Strengthen Future Prospects

Key Takeaways

• Willis Lease Finance's expanded funding and investment strategies could boost growth, leading to improved revenue and earnings.
  
• Strong demand and strategic asset acquisitions may increase lease rates and utilization, enhancing revenue, margins, and potential shareholder dividends.
  
• Supply chain issues, macroeconomic challenges, and reliance on specific engine leases could threaten revenue stability and future financial performance.

Catalysts

Operates as a lessor and servicer of commercial aircraft and aircraft engines worldwide.

• Willis Lease Finance is expanding its revolver to $1 billion and increasing investment from the Development Bank of Japan, which supports capital deployment for growth and may positively impact future revenue and earnings.
  
• Demand for engines remains robust due to supply chain issues affecting OEM production and MRO repair times, suggesting higher utilization and lease rates, expected to increase revenue.
  
• The company's diversified asset acquisition strategy, including purchasing new generation engines, is designed to support growth in various market conditions, likely boosting future revenue and earnings.
  
• Willis Lease Finance's programs like ConstantThrust are attracting more airlines, potentially increasing lease durations and utilization rates, leading to higher revenue and improved net margins.
  
• The firm aims to maintain a BB-type credit profile while reducing leverage to support growth, which could lead to improved earnings and potentially enhance shareholder value through dividends.

Willis Lease Finance Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Willis Lease Finance's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.2% today to 16.5% in 3 years time.
• Analysts expect earnings to reach $106.0 million (and earnings per share of $14.38) by about February 2028, up from $94.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.7x on those 2028 earnings, up from 13.2x today. This future PE is lower than the current PE for the US Trade Distributors industry at 18.6x.
• Analysts expect the number of shares outstanding to grow by 0.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.36%, as per the Simply Wall St company report.

Willis Lease Finance Future Earnings Per Share Growth

Risks

• Supply chain issues continue to affect OEM's ability to produce new assets and parts, which might lead to constraints in acquiring new engines, potentially impacting revenue and limiting portfolio growth.
  
• The Boeing strike may result in customers delaying new aircraft purchases, possibly leading to decreased immediate demand for leasing services, affecting revenue steadiness.
  
• Macro-economic challenges such as increases in average indebtedness and higher financing costs could lead to increased net finance costs, thus impacting net margins and profitability.
  
• The concentration of leasing to certain engine types and reliance on short-term leases could pose a risk to revenue stability if market demand shifts, affecting earnings.
  
• Uncertain geopolitical and market conditions, alongside changes in asset values and lease rate trends, may affect the predictability of future growth and financial performance, which could influence net income and future earnings.

Valuation

• The analysts have a consensus price target of $218.0 for Willis Lease Finance based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $641.3 million, earnings will come to $106.0 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $189.17, the analyst price target of $218.0 is 13.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.