AL - Air Lease: Neutral On The Common Shares Bullish On Series A Preferred Stock

Summary

• Air Lease is one of the largest lessors of commercial aircraft and has the largest pipeline with the manufacturers with deliveries coming over the next several years.
• The common stock is priced at 8.5 times estimated 2022 earnings after eliminating the write-off of its Russian fleet and a discount to book value.
• Debt issuance will be relatively high over the next few years during a higher-rate environment. The floating-rate feature of the preferred stock should limit sensitivity to movements in rates.
• We assign a Hold rating on AER stock and a $37 price target, approximately equal to 9x forecast 2023 EPS.
• We assign a Buy rating on the Series A Preferred Stock, with a $25 target, equal to its Liquidation Preference. A potential redemption once the floating rate period begins would provide a total return of 22% over 16 months.

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