AAR CORP. (AIR) Stock Forecast & Price Target

AAR is a diversified provider of services and products to the commercial aviation and government and defense markets, serving aircraft fleet operators, original equipment manufacturers, independent service providers, and domestic and foreign military customers. It operates through several segments, with the majority of its revenue coming from the Parts Supply segment. The company has shown strong financial performance, beating earnings estimates and increasing its guidance, driven by higher revenue and operating margins. AAR has a strong outlook, with diverse revenue streams, growth opportunities in new parts Distribution, and ongoing hangar expansions. The company has reduced its net leverage and plans to use its cash for potential M&A, growth investments, and deleveraging. Overall, AAR is well-positioned to benefit from the strong aerospace and defense aftermarket backdrop, with potential for margin expansion and strong relative value for long-term investors.

AAR is facing risks in its government and commercial businesses, with declining top-line growth due to the COVID-19 pandemic and potential delays in defense contracts. This could result in lower EBITDA and a potential decrease in investor confidence, leading to a lower multiple of ~9.5x and a downside scenario of $80 per share. On the other hand, a faster recovery in the commercial aviation market or increased market share in government or commercial sectors could lead to a stronger top-line CAGR of 15% and better-than-expected EBITDA margins, warranting an extra turn in valuation to 12x EBITDA and a potential upside scenario of $150 per share.