Shares of Air Lease Corporation (AL Quick QuoteAL - Free Report) have had a good time on the bourses of late, improving in double-digits over the past 30 days. The encouraging price performance resulted in AL outperforming its industryin the said time frame. Moreover, AL’s price performance compares favorably with other industry players like Wabtec Corporation (WAB Quick QuoteWAB - Free Report) and The Greenbrier Companies, Inc. (GBX Quick QuoteGBX - Free Report) in the same time frame.

One-Month Price Comparison

Image Source: Zacks Investment Research

Given the recent rally, the question that naturally arises is whether AL stock can sustain its bullish price performance or if investors should book profits now. Before that, let's delve deep to unearth the reasons behind this northward price movement.

Fleet Growth and Increase in Sales Activity: A Major Tailwind

Air Lease's top line is benefiting from strength across both segments. Revenues from the rental of flight equipment are coming from growth in AL’s fleet. The net book value of flight equipment increased to $27.9 billion at the third quarter of 2024-end from $25.6 billion at the prior-year quarter end.

As of Sept. 30, 2024, Air Lease’s fleet included 485 owned aircraft and 64 managed aircraft and had commitments to purchase 287 aircraft from Boeing and Airbus for delivery through 2029. Total aircraft investments in the third quarter were $1.9 billion. During the third quarter, the company took delivery of 20 jets from its order book. This represented $1.9 billion in aircraft investments.

Revenues from aircraft sales, trading activity and other sources benefit from an increase in gains from aircraft sales. During the first nine months of 2024, AL witnessed $104.2 million in profits from the sale of 25 aircraft and $14.5 million from three sales-type leases.

Factors Weighing on AL Stock

Air Lease is currently facing multiple headwinds like higher interest expenses, a rise in operating expenses and a debt-laden balance sheet. Let’s discuss them in detail.

Higher interest expenses due to an increase in the composite cost of funds and overall outstanding debt balance are hurting Air Lease’s bottom line. AL anticipates its interest expenses to continue to increase as its average debt balance outstanding increases with the growth of its fleet.

Rising operating expenses(due to higher selling, general and administrative expenses; interest expenses and depreciation of flight equipment costs) pose a threat to the company's bottom line. During 2023, operating expenses rose 18.6% to $1.99 billion. In the first nine months of 2024, operating expenses rose 9.8% year over year to $1.63 billion.

Air Lease’s liquidity position is a concern. Cash and cash equivalents of $460.78 million at the end of the third quarter of 2024 were lower than the $20.16 billion of debt financing and net of discount and issuance costs. This implies that the company does not have enough cash to meet its debt burden.

AL’s high debt levels are concerning. Long-term debt increased to $20.1 billion at third-quarter 2024-end from $18.6 billion in the year-ago quarter.

Long-Term Debt to Capitalization

Image Source: Zacks Investment Research

Given this headwind surrounding the stock, earnings estimates have been southbound, as shown below.

Image Source: Zacks Investment Research

To Conclude

It is understood that continuous growth in the company’s fleet and increase in sales activity is driving Air Lease’s top line. However, given the headwinds mentioned in the write-up, we do not advise buying this Zacks Rank #3 (Hold) stock at present.

Instead, investors should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank #3 (Hold) supports our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.