Since I wrote about AerCap in 2020, share prices have surged. I don't regret buying shares of the Ireland-based lessor, and if I had any regret, it is that I did not buy more. AerCap Stock: A Strong OutperformerĪerCap stock has not disappointed me one day. In this report, I look at the stock price performance as well as the company's most recent results, and I will provide an update to my price target for AerCap. ![]() The stock hasn't let me or my portfolio down a single time since I added shares. Since I marked shares a buy during the pandemic, AerCap stock has showed outsized returns for shareholders, validating my buy thesis for the stock. The company is free of some of the pains that airlines face and has streamlined rental collection from long-life assets that are now more in demand than ever. ( NYSE: AER) is my favourite investment opportunity to capitalize on the recovery in air travel demand. Inflation is likely to benefit hard assets like aircraft and as the costs of components rise, so too will the value of the assets.AerCap Holdings N.V. While BOC is rated higher than AerCap, I am assuming that AerCap borrows at over 100bps more than that in 2023, which, although markets can change quickly, seems to be fairly conservative. Recent competitor bond issuance has been constructive, with BOC Aviation's ( OTCPK:BCVVF) recent 5-year unsecured bond pricing at 4.5%. Inflation and longer-term rise in interest ratesĪerCap has prudently locked in very attractive long-term financing. actually had the effect of a plunge in rates, which, all else equal, would likely be a net positive for AerCap's borrowing costs. The recent spate of bank failures in the U.S. That said, the impact of higher interest rates has not seemed to put a dent into strong results and outlook from AerCap's airline customers. The global central bank tightening cycle is still ongoing with no end in sight yet. Risks to investment thesis Economic recession I continue not to ascribe any value to these claims, but there's some chance for a significant recovery which would likely boost shares materially. The trial date for one of AerCap's claims related to loss of aircraft in Russia and Ukraine has been set for October 2024. I continue to expect at least $1 billion in share repurchases per annum over the next few years, with the potential for these amounts to rise substantially if the business continues to perform well and generate strong cash flows. There's still leasing and trading income being exchanged by the parties. GE and AerCap should continue to be strong partners to one another despite the reduction in ownership. To the extent that GE looks to divest additional portions of its stake, I would expect AerCap to participate provided that the shares traded at least at a modest discount (~15%+) to book value. I was not surprised to see this, nor was I surprised that the company instituted a new $500 million share repurchase program expiring in September shortly after this negotiated purchase was initiated. It gave AerCap the opportunity to execute a large buyback of ~8.8 million shares, depleting its entire $500 million allocation in the process. While they still own 33.6% of outstanding shares, it certainly suggests that it's likely that GE will look to exit the business sooner than later, rather than remain as a long-term shareholder in the business. I will admit that I was surprised to see General Electric ( GE) selling a 23 million block of shares (~30% of its stake) in AerCap in March. ![]() Share buybacks occurring at an accelerated pace ![]() I continue to assume a 10% margin on $2.5 billion of annual asset sales, but recent performance suggests that there could be an upside to the contribution of trading to the P&L. They have substantially increased assets held-for-sale to $607 million in this most recent quarter, reflecting the robust pipeline of sales that the company has in the near term. ![]() AerCap CEO Aengus Kelly has remarked several times in recent quarters that airline customers have been more inclined to buy aircraft than they were previously, which may also be contributing to this strength. This compares favorably to the high single digits to 10% margin that the company has historically achieved on average and could be driven by the company's accretive acquisition of GECAS. While these amounts can be volatile based on market conditions and other factors, over the past three quarters, AerCap has sold ~$1.3 billion of aircraft at a margin of high teens to 20%. The company has delivered stellar trading results in recent quarters. A step-up in trading activity and profitability?
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