Aircastle Looks Ready for a Bounce

Aircastle (NYSE: AYR) stock has taken a serious beating in the past 52-weeks. With investment banks raising their ratings, insiders buying, and a nice dividend, we believe it's time for this stock to bounce.

Last week, Aircastle said that fourth-quarter earnings surged 78% with sales more than doubling. The earnings, however, came in 4 cents shy of the $0.50 per share expected by Wall Street, sending Aircastle shares tumbling to it's 52-week, dropping more than 12%.

Since then, shares have recouped some of their losses thanks to analyst upgrades from Goldman Sachs and Citi. Both upgrades noted that the sell off was overdone and that the earnings shortfall was due mainly to the timing of new aircraft acquisitions, higher depreciation costs, and one-time SGA costs. Goldman raised it's rating to Buy from Neutral, citing strong lease rates and terms for the aircraft leasing market.

On Tuesday, two Aircastle insiders purchased Aircastle shares on the open market, for a combined total of nearly $100,000. This is another positive for Aircastle stock, as insiders also believe the sell off was overdone.

It is our recommendation to begin accumulating more Aircastle shares while the price is depressed. When Aircastle releases information regarding it's next dividend payout, you can bet that the payout will increase at least 5%, more likely approaching 13-15%, representing a sizable (upwards of 13.5% from today's stock price) dividend to keep you profitable while the stock recovers.

Disclosure: No position

Comments

[mdj]

How did you arrive at your dividend number?

[Ryan Freund]

The dividend is currently $0.70 per share and in each successive quarter, Aircastle has raised it. Last time it was from $0.65 per share to $0.70 per share. My guess is that they'll increase it to $0.80 per share, representing a 14% increase. If they do, the forward dividend will be $3.20 per share per year, representing, at the current price, a 15.1% dividend. If they increase it to only $0.75 per share, then the $3.00 dividend would represent a 14.2% dividend. Either way, not too shabby.

Ryan

[User 163205]

How long can this company continue to pay dividends that are greater than their earnings?

[DSX Lover]

Bouncing Down you mean! Donkastic Call, Dividend reduced by 65%, this is what happens to highly leveraged companies, that bleed the free cash flow of the business enterprise. Once the Banks pull the plug on them, they have to finally service the debt. Another great move by Chairman Wes Edens, who has also taken down private equity FIG downhill. FLY is going down too, I don't think they can keep that dividend without earnings, if you're looking for high yield in this sector GLS seems like a safer play, but I cannot be confident on them also.
No positions in FIG, AYR, FLY, or GLS. Have been long AYR but sold early January at $22.

[Ryan]

AYR will now continue its upward movement. This was the bad news everyone was waiting for. They slashed the dividend to accumulate capital in order to fund future purchases rather than relying on the unreliable banking industry.