AAR Corp.AIR recently announced that its board of directors approved the renewal of its share repurchase program, with a purpose to return value to its shareholders. With this approval, AAR Corp. can now repurchase up to $150 million worth of shares. This move reflects not only the financial strength of the company but also its ability to deploy capital effectively.
The company’s liquidity and other investment opportunities will play a key role in scheduling the share buyback program.AAR Corp. intends to fully deploy the authorized amount approximately in the next two years.
Can AAR Corp. Retain Its Share Buyback Program?
Returning cash to shareholders is backed by a company’s ability to generate profit and maintain liquidity in the business. In this context, it is worth mentioning that AAR Corp.’s adjusted earnings surged 71% in the last reported quarter while its sales rose 8.2% on a year-over-year basis. Meanwhile, its adjusted gross profit witnessed a 12.8% improvement in the fiscal second quarter. This reflected the company’s strength in business and its ability to generate profit from various business opportunities.
Also, AIR’s adjusted cash from operating activities came in at $25.9 million while cash and cash equivalents were $42.7 million in the last reported quarter, exhibiting its solid liquidity position.
Further, its balance-sheet strength can be gauged from its long-term debt balance. The company effectively made its balance sheet less leveraged by paying down debt to the extent of $30.5 million in the last six months. Interest expenses decreased a solid 62% in the same period.
Additionally, the company’s various contracts wins added growth opportunities and generated cash. AAR Corp. ended the fiscal second quarter with a 10-year$365-million contract win with the U.S. Air Force, which primarily comprises depot-level maintenance and repair services for the F-16 aircraft based in Europe. Such contract wins highlight AAR Corp.’s capability to generate enough capital in the business consistently.
Further, the expected recovery in overall commercial passenger traffic is anticipated to bolster demand in commercial aerospace, thus supporting AAR Corp’s ability to generate cash flows from operations. Backed by all these driving factors and its ability to deploy its capital effectively, AAR Corp. can maintain its liquidity position in the long haul, further assisting in returning excess cash to its shareholders.
Deploying capital by buying back shares is a common phenomenon adopted by numerous companies to show their financial strength. In this context, defense players like AAR Corp. who have successfully deployed capital in share repurchase activity to return cash to their shareholders are:
In December 2021, Raytheon Technologies RTX made a new $6 billion stock-buyback announcement, which replaced the company’s previous share repurchase authorization of $5 billion.
Raytheon’s third-quarter 2021 adjusted earnings per share of $1.26 outpaced the Zacks Consensus Estimate by 17.8%. Its shares have returned 19.6% in the past year.
In November 2021, Northrop Grumman NOC announced that it has entered into an accelerated share repurchase agreement (ASR) with Goldman Sachs & Co. LLC to repurchase $500 million of Northrop’s common stock. The ASR is an addition to previously planned repurchases, including open market share repurchases. With this move, Northrop Grumman is now targeting more than $3.5 billion of repurchases in 2021.
Northrop Grumman reported third-quarter 2021 earnings of $6.63 per share, which surpassed the Zacks Consensus Estimate by 11.8%. Shares of NOC have returned 26.8% in the past year.
In November 2021, Curtiss-Wright Corporation CW announced that it will hike its share repurchase program by $100 million. With the current authorization, Curtiss-Wright can now make share repurchases worth $350 million in 2021.
Curtiss-Wright reported third-quarter 2021 adjusted earnings of $1.88 per share, which surpassed the Zacks Consensus Estimate by 4.4%. The stock has returned 19% in the past year.
In the past year, shares of AAR Corp. have rallied 5.8% compared with the industry’s growth of 7.5%.
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AAR Corp. carries a Zacks #4 (Sell).
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