New Aircraft Orders Will Expand Global Reach

Key Takeaways

• Continued demand and aircraft supply constraints support higher lease rates, revenue growth, and profitability improvements for Air Lease.
  
• Diversified funding and capital allocation enhance financial flexibility, supporting strategic growth and improved shareholder returns.
  
• Geopolitical, supply chain, and financial pressures threaten Air Lease's revenue growth and profitability due to increased costs and potential legal and economic uncertainties.

Catalysts

An aircraft leasing company, engages in the purchase and leasing of commercial jet aircraft to airlines in the Asia Pacific, Europe, the Middle east, Africa, Mexico, Central America, South America, the United States, and Canada.

• The company's plan to deliver $3 billion to $3.5 billion of new aircraft from their order book this year, with $800 million expected in Q2, suggests significant future revenue growth.
  
• Ongoing demand for aircraft from international markets is expected to result in higher lease rates and higher extension activity, which can improve Air Lease's revenue and net margins.
  
• The recent insurance recoveries and anticipated further proceeds enhance Air Lease's capital position, providing the opportunity to allocate capital toward growth opportunities and shareholder returns, potentially boosting EPS.
  
• Aircraft supply constraints due to OEM delays are likely to continue for 3-4 years, which could sustain higher lease rates and support revenue and profitability growth.
  
• As Air Lease diversifies funding sources and extends its revolving credit facility, it demonstrates improved financial flexibility to capitalize on market opportunities, potentially favorable for earnings and margins.

Air Lease Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Air Lease's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 22.8% today to 18.9% in 3 years time.
• Analysts expect earnings to reach $646.7 million (and earnings per share of $5.86) by about May 2028, up from $639.4 million 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 12.1x on those 2028 earnings, up from 9.2x today. This future PE is lower than the current PE for the US Trade Distributors industry at 19.7x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.26%, as per the Simply Wall St company report.

Air Lease Future Earnings Per Share Growth

Risks

• Tariffs imposed by governments could impact aircraft importation costs for airline customers, potentially affecting airline budgets and reducing their ability to fund new leases or extensions, which could impact Air Lease's revenue.
  
• Aircraft and engine delivery delays from manufacturers like Airbus due to supply chain constraints could impact Air Lease's ability to grow its fleet on schedule, affecting forecasted revenue growth.
  
• Increasing interest expenses, as noted with a 23 basis point increase in cost of funds, could compress net margins if revenue growth does not outpace the rise in financing costs.
  
• The ongoing litigation regarding Russia fleet insurance claims introduces legal uncertainties and financial risks, which could lead to unexpected expenses and impact the company’s earnings stability.
  
• The potential for macroeconomic uncertainties, such as global recessions or inflationary pressures exacerbated by tariffs, may reduce passenger traffic and leasing demand, thereby affecting revenue forecasts and profitability.

Valuation

• The analysts have a consensus price target of $55.286 for Air Lease 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 $69.0, and the most bearish reporting a price target of just $45.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.4 billion, earnings will come to $646.7 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of $52.67, the analyst price target of $55.29 is 4.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.