Erickson Air-Crane Incorporated (EAC) manufactures and operates Erickson S-64 Aircrane (S-64) heavy-lift helicopters. The company operates through two segments, Aerial Services and Aircraft Manufacturing and Maintenance, Repair and Overhaul (Manufacturing/MRO). The Aerial Services segment offers a range of heavy-lift helicopter services using its worldwide fleet, including firefighting, timber harvesting, and infrastructure construction and related crewing services for government and commercial customers. The Manufacturing/MRO segment manufactures air cranes from existing airframes, produces components, and provides customers with MRO services. Erickson Air-Crane Incorporated owns a fleet of 17 S-64s. The company was founded in 1971 and is headquartered in Portland, Oregon.
The company had an IPO in April 2002 at $8 per share when its EPS guidance for the fiscal year 2012 was $0.72-$0.82. Its actual full year 2012 EPS of $1.56 doubled initial guidance of $0.72-$0.82 and the stock rose as high as $14.
Then in March of 2013, EAC announced two acquisitions that would more than double the size of its company. These acquisitions will be immediately accretive and are expected to close in Q2 of 2013. The headlines of the press release stated, "Transformative, Accretive Acquisition of Global, Diversified Air Services Business. Acquisition Would Double the Size of the company." EAC did $180 million of revenue and $44.5 million of EBITDA on its own in 2012. It stated that had it owned both of these acquisitions in 2012, it would have done $430 million in revenue and 25% EBITDA margins or $108 million in EBITDA.
In the article that announced the acquisitions, the CEO Udo Rieder commented, "We believe that there are significant opportunities for incremental growth and efficiency embedded within the global operational platform we are assembling". These are amazing numbers on a pro forma 2012 basis and then the CEO mentions incremental growth and synergies.
The company had approximately 9.7 million shares outstanding and a float of 2.8 million shares prior to this these transactions. The company is only diluting the outstanding shares by 4 million preferred shares equivalent with these transactions, leaving them with approximately 13.7 million fully diluted shares and a float under 3 million. The rest of the financing of these acquisitions is coming from secured bank debt that the company is raising this week and does not dilute the shares outstanding.
The forward numbers are astounding when you compare to similar companies in the air services segment:
- Bristow Group, Inc. (BRS) has a market cap of $2.2 billion + $900 million of debt divided by $294 million of EBITDA = 10.65 EBITDA multiple.
- Seacor Holdings Inc. (CKH) has a market cap of $1.5 billion + $967 million of debt divided by $235 million of EBITDA = 10.5 EBITDA multiple.
- Air Methods Corp. (AIRM) (which is not a direct comp because they do hospital air services) has a market cap of $1.4 billion + $648 million of debt divided by $263 million of EBITDA = 8 EBITDA multiple.
If I take EAC 2012 pro forma numbers:
- $108 million of EBITDA X 8 = $464 million divided by $13.7 million shares outstanding = $33.87 per share.
- $108 million of EBITDA X 10 = $680 million divided by $13.7 million shares outstanding = $49.64 per share.
Then if you factor in the fact that the CEO said he sees incremental growth and efficiencies (higher EBITDA margin) potential in 2013, you can see why EAC is grossly undervalued and could more than double in 2103 once the street realizes these numbers.
Additionally, prior to these acquisitions, EAC had a very seasonal business that relied on the third quarter fire fighting business to carry the year. These acquisitions will spread out the seasonality and greatly diversify EAC into oil and gas, construction, and government transport along with the traditionally strong fire fighting business. They are the leader in fighting fires from the sky. I would recommend reading the top presentation link here titled, "Erickson Evergreen Acquisition slides" to get a full grasp of the potential of this new company.
Potential risks generally include delays in acquisition. However the ability to raise the debt this week would mitigate a timing delay in my opinion.
There is one analyst that has a price target of $24 before the acquisitions are factored in yet as they have not closed. That was before the company doubled in growth with these acquisitions that instantly add to earnings. You can see that the numbers are clear. Once the street does the math EAC could be a $35-$50 stock based on these numbers. With a float of under $3 million, this could even accelerate a move once this is discovered.