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Aircastle Limited

AYR

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Aircastle Limited (AYR - Snapshot Report) has delivered positive earnings surprises in the last four quarters with an average beat of approximately 46%. This Zacks Rank #2 (Buy) provider of aircraft rental and leasing services also has an impressive valuation, as evidenced by a forward P/E multiple of just 7.2 and a P/B as low as 0.7.

Robust Q3

On November 6, Aircastle reported third-quarter 2012 adjusted net earnings per share of 47 cents, which surpassed the Zacks Consensus Estimate by 51.6% and the year-ago earnings by as much as 123.8%. Total revenue increased 22.2% to $172.9 million year over year, beating the Zacks Consensus Estimate by 8.6%.

Segment wise, Lease rental revenues (historically constituting 95% -99% of total revenue) were up 15.9%, reflecting synergies from new aircraft acquisitions. Other revenues were up a whopping 2,726.1%, due to a significant amount of fees paid by a lessee in connection with the early termination of a lease. Third quarter adjusted EBITDA was up 18.3% at $166.3 million on the back of higher total revenue.

Upward Earnings Estimate Revisions

In the last 90 days, the Zacks Consensus Estimate for 2012 moved up 15.1% to $1.68 per share, while the Zacks Consensus Estimate for 2013 advanced 16.6% to $1.83. These estimates suggest year-over-year gains of 27% for 2012 and 9.3% for 2013.

Impressive Valuation

The current valuation of Aircastle looks promising. The company has a forward P/E multiple of 7.2 and a P/B multiple of 0.7 (a P/E ratio below 15.0 and a P/B ratio under 3.0 generally indicate value). These multiples are below peer group averages, indicating that the company is undervalued at present. Furthermore, Aircastle currently provides a dividend yield of 5.1%, compared with the industry average of 1.1%. The third-quarter of 2012 marked the company’s 26th successive dividend paying quarter.

Strong Chart

The widening gap between the share price and earnings estimates for 2013 and 2014 indicate that Aircastle is currently undervalued. This should encourage investors as the company is likely to sustain its positive trend, riding on the back of its growing business opportunities.

Headquartered in Stamford, Connecticut, Aircastle Limited was founded in 2004 and was formerly known as Aircastle Investment Limited. The company acquires, leases and sells high-utility commercial jet aircraft to passenger and cargo airlines globally. It has offices in the U.S., Ireland, and Singapore. On Sept. 30, 2012, Aircastle had 132 passenger aircraft and 25 freighter aircraft, which were leased to 68 lessees located in 36 countries. Aircastle currently has a market cap of approximately $914.3 million.

Other stocks to consider in the transportation leasing and equipment manufacturing sector are Air Lease Corp. (AL) and American Railcar Industries Inc. (ARII), both of which are Zacks Rank #2s (Buys).

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