AAR CORP. (AIR) Stock Forecast & Price Target

AAR Corp demonstrated a strong financial performance, highlighted by a notable 79% year-over-year increase in EBITDA within its Expeditionary Services segment, reaching $3.4 million and achieving a 15.3% margin, reflecting a 340 basis point improvement. Overall, the company reported an EBITDA increase of 1% year-over-year to $28.1 million with a 13.1% margin, as well as a substantial 34% increase in EBITDA to $43.8 million for another segment, leading to a 13.8% margin, a 70 basis point rise. Additionally, earnings per share (EPS) rose by 27% year-over-year to $1.08, surpassing consensus estimates by 10.2%, indicating robust underlying profitability and operational efficiency across its various segments.

AAR Corp is anticipated to continue trading at a discount relative to its peers in the commercial aerospace and maintenance (AM) sector due to its lower margins and a prevailing investor perception that the commercial maintenance, repair, and operations (MRO) business lacks attractiveness compared to other areas within commercial AM. The company's Repair & Engineering segment experienced a slight decline in sales, highlighting ongoing challenges amidst competition from larger firms, even though the organic growth of 8% may point to some resilience. Additionally, management's focus on cost management has been identified as a significant headwind affecting margins, exacerbating the challenges posed by potential reductions in investments from original equipment manufacturers (OEMs) and airlines.