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Multiple Tailwinds Aid Air Lease (AL): Retain Stock for Now

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We have issued an updated research report on Air Lease Corporation AL on Sep 7.

In the second quarter of 2018, results of which were declared in July, the company reported better-than-expected earnings per share (EPS). The bottom line was aided by a reduced tax rate. Notably, effective tax rate in the quarter was 21.8% compared with 35.3% in the second quarter of 2017. In fact, Air Lease has an impressive surprise history. The company’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 21%.

Moreover, fortunes of this Los Angeles, CA-based aircraft leasing company are closely tied to the airline industry. According to International Air Transport Association (IATA), the industry is set on a growth path with net profit estimated to reach $33.8 billion in 2018. In fact, the company is benefitting from strong passenger traffic and rising fuel prices, which has led to an increase in demand for aircrafts. Higher demand along with a shortage of delivery positions leads to higher lease rates.

Furthermore, we are also impressed by the company’s constant efforts to expand its fleet. Additionally, Air Lease’s impressive dividend payment history is a positive. In December 2017, the board of directors raised the quarterly cash dividend by 33% from 7.5 cents per share to 10 cents.

However, due to high operating expenses, shares of the company have underperformed its industry in a year’s time. The stock has gained 11% compared with the industry’s rise of 16.9%.

Thanks to the underperformance with respect to price, the stock’s valuation is currently cheap. In terms of price-to-book (P/B) ratio, the stock is currently trading at 1.1 compared with the industry’s reading of 1.7.

Air Lease also has an impressive VGM Score of B. Here, V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores.

In light of these positives, we believe that Air Lease should be retained by investors for now. The Zacks Rank #3 (Hold) carried by the stock seems to suggest the same.

Stocks to Consider

A few better-ranked stocks in the broader Transportation Sector are CSX Corporation CSX, Norfolk Southern Corporation NSC and Old Dominion Freight Line, Inc. ODFL. While Norfolk Southern carries a Zacks Rank #2 (Buy), CSX Corporation and Old Dominion sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of CSX Corporation, Norfolk Southern and Old Dominion have gained 27.9%, 24.2% and 11.7% in the last six months, respectively.

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