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Why the COVID-19 Crisis Can’t Sink AerCap (AER) Stock?

Alex Smith

Greenlight Capital Fund recently released its Q1 2020 Investor Letter, a copy of which you can download below. The fund posted a return of -21.5% for the quarter, underperforming its benchmark, the S&P 500 Index which returned -19.60% in the same quarter. You should check out Greenlight Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Greenlight Capital highlighted a few stocks and Aercap Holdings N.V. (NYSE:AER) is one of them. Aercap is the world's largest independent aircraft leasing company. Year-to-date, AER stock lost 53% and on May 15th it had a closing price of $25.28. Its market cap is of $3.62 billion. Here is what Greenlight Capital said:

"AER: The airplane leasing company is exposed to the unprecedented level of disruption to global air transportation. At $28.12 it now trades at 39% of book value and 3.3x trailing earnings. Obviously, there will be lower earnings in 2020 (analyst estimates of around $1.50 per quarter are little better than wild guesses at this point). AER will have to deal with troubled customers, missed payments and even some bankruptcies. It will have some planes returned to it, which may be difficult to sell or lease to new customers. However, the policy response from governments around the world is that the airline industry needs to be supported.4 We believe that most airlines – with government help in many cases – will not go bankrupt and will honor their leases. AER’s customers have to make $40 billion of contractual lease payments with an average duration of 8 years. AER stock has fallen much further than an index of global airline equities, which, given AER’s comparatively lower risk profile, seems unjustified. AER has plenty of in-place liquidity and could raise substantial incremental liquidity if necessary given >70% of its planes are unencumbered. AER is not in financial distress. Its investment grade-rated 2026 bonds trade at 89% to yield 6.7%."

In Q4 2019, the number of bullish hedge fund positions on AER stock increased by about 16% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with AER’s growth potential.

Disclosure: None. This article is originally published at Insider Monkey.