We had downgraded our recommendation on AAR Corporation (AIR) from Neutral to Underperform. We have been witnessing an overcapacity in the aerospace market, aggravated by intense competition from the big and small industry players.
Risk of lower military operations, delayed aircraft delivery and unscheduled maintenance inspections raise costs. In addition, inadequate debt financing, unfavorable aircraft lease agreement and currency fluctuations constrain profitability considerably.
The company reported net income per diluted share of $0.50, beating the Zacks Consensus Estimate by a penny. However, our $15.00 target price, 8.2x 2012 EPS, reflects our downgrade in recommendation.
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