AAR Corp. (AIR): Examining Valuation After Strong First Quarter Earnings Growth

If you’re holding shares in AAR (AIR) or thinking about jumping in, there’s a new earnings report you’ll want to pay attention to. The company just posted results for its first quarter, and both the sales and net income numbers moved sharply upward from a year ago. With revenue at $739.6 million, marking an increase, and net income climbing to $34.4 million compared to last year's $18 million, the report highlights real momentum in the business’s operational efficiency and ability to turn growth into profits.

This latest earnings surge follows a year that has already seen AAR’s stock price return nearly 19% for investors. That is part of a broader three-year climb, suggesting that interest in the aerospace and defense sector is not fading, and AAR’s recent executive board appointment also hints at an evolving approach to governance. In just the past month, shares have risen smartly, reflecting a shift in investor perception of growth potential or reduced risk.

The big question now is whether AAR’s earnings strength means the stock is undervalued at recent prices, or if the market is already pricing in the next phase of growth. Is there more room to run, or is this as good as it gets?

Most Popular Narrative: 9.9% Undervalued

The prevailing narrative among analysts currently sees AAR as undervalued by nearly 10% relative to its estimated fair value. This view hinges on the company’s ability to grow both revenue and margins while executing on strategic expansions and digital transformation.

The commercialization of additional MRO capacity in Oklahoma City and Miami, both already sold out before opening, positions AAR to capitalize on the expected long-term rise in global air travel and the need for ongoing maintenance of aging aircraft fleets. This is expected to support robust revenue growth and improved earnings visibility.

Curious about why analysts are so bullish on AAR's future? There is a powerful formula behind this valuation, one that fuses ambitious earnings milestones, margin improvement, and a forward-looking profit multiple that defies convention. Ready to see what underpins this surprisingly high fair value? The full narrative unpacks the crucial projections at the heart of this story.

Result: Fair Value of $87 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, continued heavy reliance on commercial aviation demand and the rising competition from OEMs could quickly undermine the optimistic outlook for AAR’s future growth.

Find out about the key risks to this AAR narrative.

Another View: Testing the Price Tag

While the earlier approach points to AAR being undervalued, our SWS DCF model comes to the same conclusion. This reinforces optimism from a different angle. But does that double affirmation really make the case airtight?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AAR for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own AAR Narrative

If these perspectives do not quite fit your own take or if you want hands-on experience with the data, you can easily craft your own analysis in just a few minutes. Do it your way

A great starting point for your AAR research is our analysis highlighting 2 key rewards and 4 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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