March 22, 2012
Welcome to the Stock of the Day for March 22, 2012. Today, we're going to take to the skies and analyze AAR Corp. (AIR), a leading provider of products to both commercial aviation industries as well as the defense industry.
Company Overview: True to its ticker symbol, AIR deals with getting passenger aircraft, cargo carriers and military aircraft in the air. With a workforce of 6,100, this company specializes in repairing and modifying airplanes as well as providing logistics services for keeping operations running smoothly. Finally, the company also has a successful business in engineering and manufacturing precision parts to aircraft and industrial applications. With its extensive network of public and private partnerships across 13 countries, AAR Corp. is listed among the top 100 defense contractors in the world.
Industry Breakdown: There are 51 companies in the Aerospace/Defense Products & Services Industry, and AAR Corp. is ranked towards the middle in terms of most fundamental metrics. This company is 25t in terms of market cap, 27th in terms of earnings growth and 28th in terms of sales growth. Its 9% return on equity is 31st in the industry. The two metrics that AAR Corp. shines are its 1.3% dividend yield (the ninth best in the industry) and its long-term growth rate (seventh best). AAR Corp.'s main competitor is Goodrich Corp., and Goodrich comes out on top in terms of sales growth and operating margin.
Acquisition Buzz: Recently AAR Corp. completed an acquisition that should revamp how the aerospace services company does business. For $280 million, the company acquired Telair International GmbH and Nordisk Aviation Products, in a move to add to the company's commercial manufacturing business. Specifically, Telair specializes in wide-body and narrow-body aircraft and enjoys a firm handhold on the world's most popular passenger and freight models. Telair has operations in Germany, Sweden and Singapore, and has regular dealings with Airbus. Similarly, Nordisk has operations in Norway in China nad specializes in heavy-duty pallets and lightweight cargo containers. With these two acquisitions, the company expects to generate $225 million in revenue and add to its EPS between $0.20 and $0.25 per share. To put things in perspective, the company's brought in $1.78 billion in sales for the entirety of 2011.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Although AAR Corp. began to make some improvements during the summer months, currently the stock is back to where it was this time last year—at a "D" rating. Basically, this company has lackluster fundamentals; the only metrics that it scores well on are its operating margin growth and analyst earnings revisions. The other six fundamental measures, including sales growth and earnings growth, are all C- or D-rated. But, what really keeps this stock down in "sell" territory is its depressed level of buying pressure—it has been at rock bottom for the past several months. This is a D-rated stock.
Bottom Line: If you hold shares of AIR, I recommend that you find a good exit point for this stock.