I Grounded Dividend Paying Air Lease From My Growth Portfolio

Mar.14.14 | About: Air Lease (AL)

Summary

Air Lease earnings growth rate has decelerated from last year.

Air Lease pays a minuscule dividend.

I swapped out of Air Lease for Nucor.

Air Lease Corporation (NYSE:AL) is an aircraft leasing company, principally engaged in purchasing commercial aircraft which, in turn, it leases to airlines around the world. On February 27, 2014, the company reported fourth quarter earnings of $0.55 per share, which beat the consensus analysts' estimates by $0.07. During the past year the company's stock price is up 25.93% excluding dividends (up 26.27% including dividends) and is beating the S&P 500 (NYSEARCA:SPY), which has gained 19.03% in the same time frame. I recently sold Air Lease out of my growth portfolio because I felt it was time to get out of the stock and traded it in exchange for Nucor Corporation (NYSE:NUE). The intent of this article is to evaluate Air Lease against itself when I first wrote about it and not compare it against Nucor (but I will also provide fundamental information on Nucor). With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to show why I've made the switch for my growth portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 22.4, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 13.46 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.7 per share and I'd consider the stock inexpensive until about $41. The 1-year PEG ratio (1.13), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 19.77%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 19.77%. In addition, the company has great long-term future earnings growth potential, with a projected EPS growth rate of 25%. Below is a table of the fundamental metrics I look for in a company and shows how Air Lease fares against itself and Nucor.

Date

Ticker

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

12Dec14

AL

31.05

20.29

14.00

2.22

33

0.70

29.10

13Mar14

AL

36.28

22.40

13.46

2.70

41

1.13

19.77

13Mar14

NUE

48.65

32.01

13.33

3.65

54

0.90

35.72

Click to enlarge

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 0.33% with a payout ratio of 7% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.1%, 7.2% and 4.2%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 0.33% yield of this company is good enough for me to take shelter in for the time being. Below is a table of the financial metrics I look for in a company and shows how Air Lease fares against itself and against Nucor.

Date

Ticker

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

12Dec14

AL

0.39

8.00

2.1

6.8

2.0

13Mar14

AL

0.33

7.00

2.1

7.2

4.2

13Mar14

NUE

3.04

97.37

3.9

7.5

6.0

Click to enlarge

Technicals

Click to enlarge

Looking first at the relative strength index chart [RSI] at the top, I see the stock is dropping from overbought territory with a value of 61.12 with downward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is just about to cross below the red line with the divergence bars decreasing in height, indicating some bearish momentum.

Recent News

  1. On 27Feb14 the company reported fourth quarter earnings of $0.55 which beat estimates by $0.07 on revenue of $242.9 million which beat estimates by $16.51 million.

Conclusion

These are two completely different types of companies, and before you begin to chastise me for it, this article was not meant to be a comparison. I'm merely just displaying the data points for Nucor as a baseline for me in future articles. I sold Air Lease for a 13.78% gain including dividends or 48% on an annualized basis. Since making the switch, Air Lease is down 1.73% against the 1.46% drop Nucor has posted. I just felt it was time to leave Air Lease because the growth expectations have decreased a bit from when I last wrote about it.

Fundamentally, I believe Air Lease to be inexpensively valued based on 2015 earnings, but fairly priced based on future growth potential, and that is the main reason why I sold the stock. Financially, I'm gaining quite a bit of dividend, but at a higher payout ratio. On a technical basis, Air Lease may be dropping quite a bit. I will provide reports on how each is doing against each other as the future progresses.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long NUE, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.