AerCap's (AER +6.4%) gains today put the stock more than 40% higher since the deal with AIG was announced yesterday, and Deutsche's Michael Linenberg says there's more to come, reiterating his Buy rating and boosting the price target to $40 from $27.
"We expect the deal to be accretive for AER shareholders on the onset, in light of the $600M of expected annual synergies and the attractive price at which the portfolio will be acquired,"says Linenberg. "Moreover, AerCap is inheriting ILFC’s order book of 385 in-demand aircraft, which should lead to a strong/relatively predictable stream of CF/EPS for the foreseeable future."
For AIG, the deal - at the moment - is less sale than a swap, as the insurer will be an owner of 46% of AER's common stock and will still include ILFC's operating results on its own books.
Writing in Barron's, Dimitra Defotis, says the spotlight now turns to AIG's core financial operations, and that may not be a good thing based on last quarter's results. Yes, AIG trades at a discount to book, but with analysts not projecting earnings growth next year, that discount could be warranted.
Maybe the most bullish case for AIG at the moment is the moonshot in AerCap may allow the insurer to unload its stake at a sweet price (the lockup agreements aren't yet known).