AIR Overleveraged and Sinking
AAR Corp (AIR - Analyst Report) provides goods & services to commercial airlines and the defense establishment. On the commercial side, demand for he Wood Dale, Illinois-based company’s product offerings moves with the size of the fleet -- which is declining -- while requirements for its services may grow as the airlines outsource more maintenance, repair and overhaul work.
For defense, AIR designs and manufactures mobility products, aircraft internal cargo loading/unloading systems and composite structures. AIR has leveraged its balance sheet to support its commercial aircraft leasing activities, which, at this point, is not considered a positive.
Consequently, Zacks opinion has been lowered to Sell and our target price has been adjusted to reflect the current market environment. The average P/E for the Aerospace/Defense suppliers group is 7.23. Using this metric and our F/Y 2009 estimate for AIR of $1.91 engenders a price of $13.81.