Aircastle Looks Good, Though Markets Demur

Nov. 7.08 | About: Aircastle Limited (AYR)

At the risk of repeating myself, I really do not understand why the market values Aircastle Ltd. (NYSE:AYR) as low as it does. The aircraft leasing company has great cash flow, pays a nice dividend and has a low debt to value ratio. Let me lay out the facts;  remember, the current share price as I write this is $6.11 and the market cap of the company is $480 million. Figures are from Friday’s 3rd quarter earnings release.

  • Aircastle’s modern fleet of aircraft has a book value of $4.0 billion. The company debt is $2.5 billion. They have $1.5 billion of equity in their aircraft vs. a market cap of $442 million.
  • For the 3rd quarter AYR had free cash flow (net income plus depreciation) of $1.12 per share, or annualized $4.48 per share of free cash flow against a $5.63 share price.
  • The annual dividend is $1.00 per share giving the stock a yield of 17.7%. They have 4.5 times coverage of the dividend in free cash flow.

These results are pretty much the same as Aircastle has produced for the last 3 quarters. Their aircraft are 99% leased out and all financing is secure until 2013. Every time the stock gets hammered I wonder what I missed, and each quarter the results come out with strong earnings and cash flow. I do not see any reason why this is not a $15 stock. If it was a $15 stock, the board might be tempted to start increasing the dividend, which they could easily do. At the current stock valuation they are just as well off keeping the cash or paying down debt.

Disclosure: AYR is a component of the author's site’s Income Portfolio.