As analysts expect Air Lease Corporation (NYSE:AL) to record solid earnings growth of 23.98% in the coming 12 months, it’s important to take a step back and evaluate this encouraging sentiment. It is crucial for investors to do this, so they can judge the underlying components responsible for spurring this growth, as the return realised by shareholders may look different in the future if underlying assumptions are not realised. To help investors get a top level understanding, I will try to evaluate Air Lease’s margin behaviour to help recognise the underlying make-up of revenue and expenses that is responsible for driving future earnings expectations and what it means for AL’s returns relative to its competitors.View our latest analysis for Air Lease
What can we tell from AL’s profit margin?
Attractive margins generally indicate a desirable ability to translate sales revenue in to earnings, and return for shareholders. By calculating AL’s profit margin, we can take a closer look at this ability and use it to understand what is driving earnings growth.
Margin Calculation for AL
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 382.04 Million ÷ 1.49 Billion = 25.67%
The past five years have seen Air Lease’s margin expand, with 29.26% in average net income growth surpassing a 23.04% average growth in revenue, which means that the previous increase in revenue has coincided with a larger portion falling to the bottom line. The current 25.67% margin seems to continue this movement, which suggests that the increase in net income has likely occurred from a combination of enhanced cost efficiency as well as top line growth.
Understanding what could be driving Air Lease’s future earnings
Forward looking projections suggest margins will continue to expand, with an expectation of 16.74% in annual revenue growth and a forecasted 20.32% in annual net income growth. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. However, those interested in the company should remember that margin expansion can hold various implications on the company’s performance depending on how it operates, which makes further research very important. In many situations, looking at a company’s profit margin in relation to other similar businesses can be more informative. For AL, future profit margin is expected to expand along with the Trade Distributors industry margins, and at the same time, Air Lease’s projected ROE of 11.80% is relatively similar to the industry’s 12.22% expectation, but debt levels need to be considered before accpeting this observation. This highlights that analysts believe the underlying earnings characteristics mentioned above will provide a return for shareholders that is comparable to the industry. But before moving forward, it must be remembered that bottom line earnings and profit margins are susceptible to being manipulated and don’t always give the full picture. Thus, it is essential to run your own analysis on Air Lease’s future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For AL, I’ve compiled three essential aspects you should further examine:
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for AL’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of AL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!