On Thursday, Goldman Sachs (NYSE:GS) resumed coverage on Air Lease Corp (NYSE:AL) with a Buy rating and a price target of $65.00. The firm's outlook is based on the anticipation of expanding net spreads for the company in 2025 and beyond, driven by a robust orderbook of in-demand aircraft and favorable lease terms set against a strong industry backdrop.
Air Lease has experienced net spread compression over the last two years due to pandemic-era leases and rising interest rates. This trend has impacted the company's valuation, with its stock trading at 0.7 times price to book, which is below its historical average of 1.0 times. Goldman Sachs expects this compression to reverse as Air Lease takes delivery of new aircraft with more advantageous lease terms.
The company's leases are typically agreed upon 18 to 24 months before the delivery of the aircraft. Most aircraft set to be delivered in 2025 have already had their lease terms secured in 2023, at rates that were trending 15% to 20% higher compared to pre-pandemic levels. This timing is projected to benefit Air Lease's financial performance in the coming years.
Goldman Sachs' Buy rating is supported by two main factors: the potential for significant organic book value and earnings per share (EPS) growth, thanks to Air Lease's substantial orderbook, and the current attractive valuation of the company's shares.
The firm believes that the combination of Air Lease's sizable orderbook and the prevailing valuation presents a compelling opportunity for investors. The $65 price target reflects this positive outlook and the expected expansion of the company's net spread in the near future.
In other recent news, Air Lease Corporation disclosed robust growth in its Q3 earnings, with revenues hitting $690 million, marking a 5% increase year-over-year, and earnings per share at $0.82. The aircraft leasing company expanded its fleet with 20 new aircraft valued at $1.9 billion and sold nine aircraft for an estimated $340 million. Despite facing challenges such as the Boeing (NYSE:BA) labor strike and aircraft delivery delays, Air Lease Corporation maintains an optimistic outlook for the remainder of the year, expecting substantial deliveries in the fourth quarter.
The company also anticipates $900 million in aircraft deliveries in Q4 2024 and projects total 2024 deliveries to be approximately $4.6 billion. Despite a $12 million decrease in end-of-lease revenue for Q3, Air Lease Corporation maintains a strong liquidity position of $7.5 billion and a healthy debt-to-equity ratio of 2.63 times. The firm's resilience is evident, particularly in the face of industry challenges.
Air Lease Corporation's strategic fleet management and focus on maintaining a young and technologically advanced fleet have been key to its success. The company remains confident in its ability to navigate the complexities of the global aircraft leasing market, with future lease rates expected to increase and a strong demand for new aircraft continuing amid supply constraints.
InvestingPro Insights
Air Lease Corp's financial metrics and market position align closely with Goldman Sachs' bullish outlook. According to InvestingPro data, the company's Price to Book ratio stands at 0.7, corroborating Goldman's observation of the stock trading below its historical average. This undervaluation is further supported by an InvestingPro Tip indicating that Air Lease operates with impressive gross profit margins, which currently stand at 58.99% for the last twelve months as of Q3 2024.
The company's revenue growth of 6.51% over the same period suggests ongoing business expansion, potentially linked to the robust orderbook mentioned in the analysis. Additionally, Air Lease has maintained dividend payments for 12 consecutive years, demonstrating financial stability and shareholder commitment. This is particularly noteworthy given the challenges faced by the aviation industry in recent years.
For investors seeking more comprehensive insights, InvestingPro offers 11 additional tips on Air Lease Corp, providing a deeper understanding of the company's financial health and market position.
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