Q3 2009 Earnings Call

November 6, 2009 11:00 am ET

The airplane leasing sector has been promising for a while now as emerging markets expand air traffic and airlines with weak balance sheets look to cut cash outlays for new planes. It's also a much better way to play this trend then to own a airline as they typically struggle to make profits with the fierce competition in the sector yet every time we turn around another company wants to open an airline. Owning one seems like a status symbol similar to a sports franchise, except airlines almost always lose value.

Airplane lessors on the other hand are typically very profitable. The airplanes typically hold their values and during a period where both Boeing (BA) and Airbus struggle to get new versions out, the planes on hand remain in high demand. It's also an attractive investment because the leases are typically for 5-7 years providing for a consistent return.

In this post is a list of 24 stocks, which have broken out to the upside on big volume. The stocks listed in this post have experienced very unusual volume. I believe stocks which have broken out like this are at least worth adding to the watch list. However I must say the technicals on these stocks are not as bullish as they've been in the previous weeks, which may be a hint that a short term correction is near. If the market continues to rally however, these stocks should continue demonstrate strength in my opinion.

As stated at the bottom of this post, I've picked two stocks from the list which I may be speculating with in the weeks to come. A month ago I chose to speculate with STEC Inc. (STEC) using call options. The results from the trade can be read here. A couple weeks ago, I chose to speculate with a stock LaserCard (LCRD). The results from that trade can be read here.

Q2 2009 Earnings Call

August 7, 2009 12:00 pm ET

Q1 2009 Earnings Call

May 7, 2009 2:00 pm ET

I have a tough time swallowing the current share price of Aircastle Ltd (AYR). From the year end earnings release, these facts point to a stock that should have a much higher value (Call Transcript).

• Cash flow (adjusted earnings plus depreciation) was $4.53 per share. 1.4 times the share price! The cash flow for the 4th quarter was a very strong $1.24.
• The entire portfolio of aircraft is covered by long term financing. There are no worries about acquiring additional debt.
• The fleet of 130 aircraft have a 98% leased rate with only 2 aircraft needing to be released in 2009.
• The company has a diverse customer base by country and company. The largest customer, KLM, is only 8% of the portfolio.
• The current dividend gives a 12% yield.

I am surprised that someone has not figured out they could buy the company for $250 million and put that amount of money in their pocket for the next 5 years then sell the fleet for half a billion. I think this stock is a steal!

Q4 2008 Earnings Call Transcript

February 27, 2009 12:00 pm ET

With the US equity market averages either probing or breaking down through their November lows, is it time to buy Phoenix stocks? Others have picked up on that theme, with the latest being a Minyanville article on buying beaten up stocks.

With that in mind, I screened the US market for stocks with the following characteristics:

It is interesting to see a company dance around a dividend cut in its press release. You can see from the title of the release (Ashford Hospitality Trust Enhances Liquidity Position Through Strategic Transactions) that Ashford Hospitality (AHT) went for the euphemism “Enhancing liquidity”. The suspension of the dividend is not mentioned until about the 6th paragraph of the press release.

I have noticed a couple of interesting items over the last few weeks. First, both AHT and Aircastle Ltd. (AYR) were significantly later (a week or so) than the previous year to announce their dividend position for the current quarter. It appears that boards of directors will drag their feet a little before announcing bad news. Or maybe it just takes them a while to come up with the best terminology.

AIRCASTLE - Investor Relations - Press Release.

OUCH! This one caught me by surprise. Aircastle, Ltd. (AYR) is cutting its dividend from 25¢ to 10¢ for the 4th quarter. I had considered the dividend pretty secure since the company is generating around $1.10 free cash flow per quarter.

Q3 2008 Earnings Call

November 7, 2008 12:00 pm ET

At the risk of repeating myself, I really do not understand why the market values Aircastle Ltd. (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.

Although the current stock market is very frustrating for those of us who look at a stocks fundamentals when making investment decisions, I find the recent actions of Aircastle Ltd (AYR) to probably be the most frustrating of the stocks I follow.

I became interested in Aircastle last spring when it significantly reduced its dividend to retain cash in the tight financial market. Yet in June the market knocked half the value out of the stock on the fears that the company’s aircraft leasing customers would have problems with the record oil prices. As these fears proved unfounded, the stock worked its way back up to around $14 providing about a 7% yield.

Aircastle (AYR) engages in the acquisition, management, and lease of commercial jet aircraft to passenger and cargo airlines worldwide. As of June 18, 2008, its aircraft portfolio consisted of 136 aircraft that were leased to 59 lessees located in 31 countries.  

AYR is currently trading at a compelling valuation ($6.26) on a free cash flow and asset value basis. AYR generates a huge amount of cash flow which they have historically paid out via dividends. The market has punished AYR as fuel costs have increased, domestic carriers struggle, and credit concerns spook investors. The extreme drop in the stock price has resulted in the market severely undervaluing the asset value of AYR. Stated book value of AYR is $16.50 but this number is artificially low as AYR has depreciated as much of their assets as possible for tax purposes. Lease rates thus far have actually increased due to strong demand in emerging markets and the fact that Airbus and Boeing (BA) are sold out until 2012.

With the market as ugly as it has been over the last week, it is nice to get some good dividend news on a couple of the stocks I follow. Markets like these tend to drive down the good along with the troubled and many good companies become great values. The problem is that a fear driven market can continue to fall with no regard to strong fundamentals. When strong dividend paying stocks make a positive announcement it can help prop up the stock price.

Nordic American Tanker (NAT) CEO Herbjørn Hansson has issued a letter to shareholders indicating the 3rd quarter dividend will be in the $1.50 range. This is close to the $1.60 paid for the very profitable second quarter. The letter reported strong daily charter rates for the quarter and at this point most of the earnings are in the bank for the 3rd quarter.

Four times a year, hedge funds & asset managers with > $100 million AUM (assets under management) are required to report to the SEC their holdings from the previous quarter. I check these 13F filings quarterly just to get a sense as to where these funds are putting their money sector wise. If you just sit down and do some simple number crunching between last quarter's 13F and this quarter's 13F, you can see exactly where these funds have been moving their money. 

Please note, these 13F's should be treated as a lagging indicator simply because the 13F's that were just released August 10-15th 2008 show the funds' holdings as of June 30th 2008. So, in the past month and a half, they could have completely changed their portfolio. But, at the same time, its easy to see which sectors they are flocking to. See more of my introduction to the current series here.

Aircastle Ltd (AYR) came out with 2nd quarter earnings pretty much as expected. This is actually very positive after the turmoil around the stock back in June. At that time the stock was hit by the double whammy of worries about financial companies and record oil prices put anything related to airlines into a tailspin. Since Aircastle leases commercial aircraft the market pushed the stock down to as low as $7.79. Neither of these worries have had any actual effect on the company’s operations and revenue growth continues nicely.

I reviewed the earnings release and the conference call there are a couple of points I would like to point out concerning Aircastle’s current valuation:

Q2 2008 Earnings Call

August 8, 2008 12:00 pm ET

Here is my initial list of replacement candidates for the third quarter 2008 portfolio reshaping:

AA ACMR ACS ACXM ADP AEM AEO AET AFFM AHL AIB AINV ALL AME AN APA ARP ATWO AVID AVZA AXS AYR BAGL BCPC BDK BGC BHI BJS BKS BLL BP BRO BRS BSET CAM CBI CBK CCK CCRT CDNS CFI CKH CMI COG COLM COMS CPB CRDN CROX CSCO CSL CTB DD DELL DFG DLM DRYS DUK DVN EGLE ENH EP ETP FAST FCX FDRY FITB FLEX FLXS FRPT FRZ FSR FTEK FTO GFF GHM GIL GMT GNK HAIN HAL HAR HAST HCC HCN HCP HELE HK HLYS HNT HNZ HOC HON HRS HRZ HTH INFS IPSU IR IRE ISCA ISYS IVN JCI JNX JOSB KCI KEY KMX KOF LMC LPX LRCX LSTR LZB MAN MAS MCRL MGIC MHK MHP MI MKSI MOT MPS MPWR MWA/A MXGL MYE NBR NBTY NFX NG NM NRG NSHA NTGR NVS NWLIA OC OCR ODP OIS OKE OMAB ONNN ORI OSK OXY PAYX PBI PBY PCZ PHX PKD PKI PPC PPG PRE PRU PTEN PVA PWR PXP PZZA RCII RDC RDK ROP RS RTN SAFM SCX SENEB SFY SGIC SGY SI SII SJM SKM SKX SLB SLGN SNDK SNG SNX SNY SPSS STZ SVR SVU SWN TECUA TEX THOR TLK TMS TPX TRMA TRN TRV TSC TSO TTC TXT UNF UNT URI USU VE VLGEA VLTR VZ WAG WDC WFT WGOV WNC WRB WTI WTIU WTM WY XEL Y ZNT ZZ

A couple of days ago Aircastle Ltd. (AYR) gave a presentation at the Credit Suisse Capital Goods Finance Symposium and it has posted the slide show to its website. The link above is a PDF presentation of the slide show.

Going through the slides, it is apparent that Aircastle is in fine shape with its leased aircraft. From what information I could find about the recent share price drop, there are two fears driving investors away from AYR. First, the general profitability problems for airlines with the recent fuel price increases and indication by many airlines to reduce flights. Second, a specific claim by one of Aircastle’s customers, US Airways (LCC), to turn in some leased aircraft. From the presentation it appears that the company will not have a problem keeping its aircraft leased and the US Airways jets are on uncancelable leases.