LEAP Engine Leasing And Equinor Deals Will Create Future Opportunities

Key Takeaways

• Strategic expansions in leasing and partnerships diversify revenue sources, improve margins, and highlight flexibility in tapping into new markets.
  
• Strong liquidity and share repurchase efforts enhance shareholder value, earnings growth, and financial stability.
  
• Economic and trade uncertainties, along with potential program delays, could challenge AerCap's revenue and earnings by affecting aircraft demand and leasing decisions.

Catalysts

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

• AerCap's expansion in the leasing of LEAP engines highlights a strategic focus on capitalizing on shorter lead times as compared to OEM aircraft orders, providing a flexible and potentially high-margin revenue stream. (Impacts revenue and earnings)
  
• The successful transitions and extensions of mid-life aircraft, such as 787s, with increased rents and improved credit highlight a robust demand for AerCap's existing assets, supporting sustained revenue growth and potentially improving net margins through higher leasing rates. (Impacts revenue and net margins)
  
• New strategic partnerships, like the sale leaseback deal with Equinor Energy for helicopters, demonstrate growth in new sectors such as energy and direct customer leasing models, indicating an expansion of revenue sources and diversification of earnings. (Impacts revenue and diversification of earnings)
  
• AerCap's ability to leverage market volatility by executing substantial share repurchase programs increases shareholder value and is expected to drive earnings growth per share, considering the high excess cash coverage and liquidity position. (Impacts earnings per share)
  
• The continued focus on maintaining strong liquidity and leveraging strategic opportunities, as seen in the increase of the 2025 EPS guidance, reflects effective capital management likely to enhance earnings and support long-term financial stability. (Impacts earnings and financial stability)

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 21.4% in 3 years time.
• Analysts expect earnings to reach $1.8 billion (and earnings per share of $11.87) by about April 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 12.7x on those 2028 earnings, up from 9.1x today. This future PE is lower than the current PE for the US Trade Distributors industry at 19.4x.
• 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 9.23%, as per the Simply Wall St company report.

AerCap Holdings Future Earnings Per Share Growth

Risks

• Ongoing uncertainty regarding tariffs and trade could impact AerCap's ability to secure future customers and aircraft deals, potentially affecting both revenue and earnings.
  
• Delays in the 777 freighter conversion program could impact short-term revenue and earnings, as these aircraft might not contribute as soon as anticipated.
  
• Potential tariff escalations on aircraft, engines, and parts could drive up costs for airlines, possibly reducing demand for new aircraft leasing and affecting AerCap's revenue and net margins.
  
• Economic uncertainty in key markets, particularly the U.S., may dampen airline capacity expansion, thereby affecting demand for AerCap's aircraft leases and could impact earnings.
  
• A high proportion of fleet renewals might face challenges if airline customers decide to downsize or delay leasing decisions due to macroeconomic conditions, impacting future revenue and earnings.

Valuation

• The analysts have a consensus price target of $119.778 for AerCap Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $130.0, and the most bearish reporting a price target of just $101.0.
  
• 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 $1.8 billion, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of $105.74, the analyst price target of $119.78 is 11.7% 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.