Strong $45 Billion Lease Cash Flows Will Support Future Stability

Key Takeaways

• High revenue visibility and strategic capital deployment support strong earnings growth and financial stability amid favorable market conditions for aircraft leasing.
  
• Diversified fleet investments and engine market opportunities optimize assets, enhance profitability, and offer additional revenue streams for future growth.
  
• The company faces potential profitability challenges due to projected lower earnings, supply-demand risks, geopolitical uncertainties, and increased leasing expenses from technical issues.

Catalysts

Engages in the lease, financing, sale, and management of commercial flight equipment in the United States, China, and internationally.

• AerCap’s strong contracted future lease cash flows of $45 billion, with over 40% to be received in the next three years, provide high revenue visibility and support future capital allocation decisions, positively impacting future earnings and financial stability.
  
• The significant demand for aircraft leasing, evidenced by high lease rate increases and sales gains, signals a favorable market environment that could lead to higher leasing revenues and net margins as lease extensions and asset sales continue.
  
• Strategic capital deployment, including a new $1 billion share repurchase program, aims to enhance EPS by reducing share count and leveraging cash flows for shareholder returns, indicating strong confidence in future earnings growth.
  
• AerCap’s investment in a diverse fleet, particularly new technology, and increasing sales of older aircraft for strong gains suggest continued revenue growth and asset optimization, supporting future profitability improvements.
  
• Opportunities in the engine leasing market, coupled with increasing engine deals, provide additional revenue streams and positions AerCap to capitalize on operational efficiencies and higher demand, potentially enhancing margins and earnings growth in the coming years.

AerCap Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AerCap Holdings's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 26.2% today to 20.1% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $11.89) by about March 2028, down from $2.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, up from 8.8x today. This future PE is lower than the current PE for the US Trade Distributors industry at 19.0x.
• Analysts expect the number of shares outstanding to decline by 6.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.55%, as per the Simply Wall St company report.

AerCap Holdings Future Earnings Per Share Growth

Risks

• The projected adjusted EPS for 2025 of $8.50 to $9.50 is lower than 2024's EPS, not including gains on sale, indicating potential challenges in maintaining net earnings and profitability.
  
• There is a risk of the supply-demand balance shifting if OEMs begin producing aircraft on time, potentially impacting future lease rates and revenue growth.
  
• The ongoing geopolitical conflict and associated recoveries related to the Ukraine situation pose uncertainties for future net margins and revenue stability.
  
• Anticipated lower other income in 2025, partly due to expected lower cash balances, could negatively affect net income and earnings.
  
• Industry challenges, such as new aircraft spending more time out of service due to technical issues, may lead to increased leasing expenses, impacting net margins negatively.

Valuation

• The analysts have a consensus price target of $121.0 for AerCap Holdings 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 $8.5 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 9.5%.
• Given the current share price of $103.04, the analyst price target of $121.0 is 14.8% 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.