We have maintained our Neutral recommendation on AAR Corp. (AIR) on Jul 12, 2013 based on strong operational efficiency and enhanced product availability partially offset by stiff competition and currency fluctuations.
Why the Reiteration?
Of late, AAR Corp. has been maintaining a satisfactory competitive position given its market expertise as well as technical and financial capabilities across segments. Backed by operating strength and robust market demand, the company expects higher sales volume as well as earnings for the year.
Meanwhile, the company is well positioned to benefit from Defense and Airlift contracts. Such a position has over time strengthened with contracts obtained for providing value-added solutions for the U.S. Army, Navy and other foreign governments.
An improved commercial air transport market worldwide also helps in boosting domestic and international demand for the company’s products, especially for maintenance and spare parts.
Moreover, the introduction of new products keeps the company’s product line up to date. Recently, the company developed a Fire Resistant Container ("FRC") that is capable of containing an onboard fire for up to six hours of flight. In collaboration with DuPont, the company has installed the DuPontTMKevlar brand fiber and Nomex XF flame barrier, thereby making FRC the lightest weighing product in the market. Going forward, these innovations would help the company in improving its top and bottom line.
Despite these positives, currency fluctuations, stiff competition, margin pressures, unscheduled maintenance inspections, high fuel prices and inadequate debt financing keep us concerned.
Other Stocks to Consider
AAR Corp. presently retains a Zacks Rank #3 (Hold). Among the stocks worth considering in the space are Astronics Corp. (ATRO), Exelis, Inc. (XLS) and HEICO Corp. (HEI), all with a Zacks Rank #1 (Strong Buy).
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