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AAR Corp. Rides on Contract Wins, Investments Amid Headwinds

Zacks Equity Research

AAR Corp.’s AIR gains from solid performance of its parts supply program and strategic investments toward parts supply activities

For fiscal 2020 and fiscal 2021, the Zacks Consensus earnings estimates for the company have moved up 0.4% and 1.7% to $2.62 per share and $2.99, respectively, in the past 90 days. Additionally, the company delivered an average positive earnings surprise of 8.07% in the last four quarters.

In the past six months, shares of the company have returned 32.4% compared with the industry’s growth of 10.3%.

What’s Driving AAR Corp.?

The company continues to witness strong performance in its parts supply and program activities. In fact, solid sales from its parts supply activities have been one of the primary catalysts behind AAR Corp.’s fiscal second-quarter top-line growth. Moreover, this is the company’s sixth consecutive quarter of double-digit sales growth. Investments toward its parts supply activities have enabled it to capitalize on the continued robust demand for parts.

Coming to its latest business wins, the company’s Airinmar subsidiary, a provider of component repair cycle management solutions, announced two new contract wins in second-quarter fiscal 2020. The first one was an agreement with Alaska Airlines for a digital trial of its Airvolution software platform. It also signed a three-year agreement with JetBlue to provide component value engineering cost oversight services. Such significant contract wins reflect solid prospects for the stock.

In fiscal 2018, AAR Corp. began offering services to the U.S. Department of State under the INL/A Worldwide Aviation Support Services contract. This contract leverages the company’s capabilities in aviation services, including flight operations, supply chain logistics, and other services.

However, labor shortage issues in MRO business and stiff competition may limit the prospects of the company.

Zacks Rank

AAR Corp. currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Picks

Some better-ranked stocks from the same industry are Heico Corporation HEI, Teledyne Technologies Incorporated TDY and Curtiss-Wright Corporation CW. While Heico sports a Zacks Rank #1, the others hold a Zacks Rank #2 (Buy).

Long-term earnings growth of Heico, Teledyne Technologies and Curtiss-Wright is pegged at 11.30%, 7.50% and 10.24%, respectively.

Heico, Teledyne Technologies and Curtiss-Wright delivered an average positive earnings surprise of 12.27%, 10.13% and 8.40% in the last four quarters, respectively.

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