XLI - Air Lease Corporation: Shares Near Fair Value After A Strong Q4

Summary

• Positive macro trends including strong air travel demand and China's reopening stand to benefit multinational firms - a weaker USD also helps.
• Air Lease is investing heavily and features decent valuation metrics, but a sizable rally lately leaves shares near intrinsic value.
• AL's chart is also lukewarm after posting a bullish pattern late last year, but with resistance not far off.

The material drop in the U.S. dollar stands to benefit companies that have sizable international sales. Moreover, industries that are tied to foreign demand could be well positioned. Geopolitical tensions will no doubt lead to more demand for defense spending among nations around the world, but traditional airline firms should also see more demand with China’s reopening in the near term.

One leasing firm has growth plans amid these macro tailwinds. But after a big Q4 2022 rally, are shares of Air Lease Corporation (AL) a buy? Let’s weigh the evidence.

Dollar Continues To Fall

According to Bank of America Global Research, Air Lease Corporation is one of the fastest-growing aircraft lessors. As of 31 March 2020, AL owned 300 aircraft (weighted average age 3.7 years, weighted average remaining lease term 7.2 years) and managed 82 aircraft. AL is an investment grade lessor based in Los Angeles, but with offices worldwide.

The California-based $4.9 billion market cap Trading Companies & Distributors company within the Industrials sector has negative trailing 12-month GAAP earnings and pays a market-rate dividend yield of 1.8%.

Back in November, Air Lease issued a bullish earnings report in which the firm beat on EPS, raised its dividend , but missed on revenue expectations. More recently, AL reported that it delivered 16 new aircraft with a sizable capex figure last quarter as the firm benefits from broad macro trends.

On valuation , analysts at BofA see earnings having risen by more than the inflation rate in 2022, but then tailing off this year. Per-share profit growth is then seen as hitting new highs by 2024, though. The Bloomberg consensus forecast is roughly in line with what BofA projects. Dividends, meanwhile, are seen as continuing to rise over the coming quarters.

With heavy capex on the horizon, AL’s free cash flow is sharply in the red, which could be problematic if profits don’t materialize and liquidity dries up. Still, both its operating and GAAP P/E ratios appear favorable when looking out to 2023 and ‘24. The EV/EBITDA ratio, though, is simply near the market average on a forward estimate basis.

Overall, with a young aircraft fleet and a sizable backlog of orders, as well as modest financial leverage on its balance sheet, the stock should be well-positioned to benefit from macro trends of heavy defense spending. The valuation is a soft buy here if we assume $5 of profits in 2023 and put a 12 multiple on that.

Air Lease: Earnings, Valuation, Free Cash Flow Forecasts

Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q4 2022 earnings date of Thursday, February 16 AMC with a conference call right after results hit the tape. You can listen live here . The outlook is light on volatility catalysts aside from the reporting date.

Corporate Event Risk Calendar

The Technical Take

AL is in a broad downtrend off its early 2021 high. Shares dipped from the low $50s into the high $20s, but then put in a bullish double-bottom low in 2022. Notice in the chart below that the stock has rebounded by about 50% since late September last year, rallying above its now flat 200-day moving average.

A L had no problem busting through a high amount of volume, as measured by the volume by price indicators on the left, in the $40 to $45 range. The next area of potential selling is the range highs of $46 to $47. I see support around $38 at an old gap and where the 200-day will eventually rise to. Overall, the chart is mixed.

AL: Bullish Double Bottom, Nearing Potential Resistance

The Bottom Line

With mixed technicals and a decent valuation, I am a soft buy on the stock but will mark it down as a hold. I would prefer to buy on a pullback into the upper $30s for a better valuation.

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