Earnings Scorecard: AAR Corp.

| About: AAR Corporation (AIR)
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Following the upbeat first quarter earnings release on September 15, the majority of analysts covering AAR Corporation (NYSE:AIR) have raised their earnings estimates for both fiscal 2011 and 2012.

First Quarter Summary
AAR Corp. posted upbeat results for the first quarter of fiscal 2011 based on the huge leap in revenues from the Government and Defense Services attributable to the acquisition of Aviation Worldwide Services ("AWS") in April 2010.

During the quarter, net income was $13.7 million or EPS of 35 cents, up 34.3% from the net income of $10.2 million or EPS of 27 cents in the corresponding period of fiscal 2010. Reported EPS beat the Zacks Consensus Estimate of 30 cents.

Revenues were $412.2 million, a 20.7% increase from $341.5 million in the first quarter of fiscal 2010 based on three times the revenue generated from the Government and Defense Services segment compared with the year-ago level. Total revenues were well above the Zacks Consensus Estimate of $372 million.

For details please click on the link: AAR Corp. Posts Upbeat Results

Agreement of Analysis
AAR Corp. recently acquired AWS, a leading provider of expeditionary airlift services and aircraft modifications to the U.S. and other governments, which is expected to generate $175 million of revenue on an annual basis. During the first quarter of fiscal 2011, AWS added five aircraft to the company’s fleet. In the long term, the acquisition is also likely to expand its products, services and capabilities for the United States government and abroad from where the company generates the majority of its revenues.

Hence, for fiscal 2011, 8 out of 9 analysts covering the stock have inched their estimates up in the last 7 days with none reducing them. The majority of analysts out of 9 covering the stock have raised their estimates also for fiscal 2012, while none of them moved in the opposite direction. Thus, the overall trend remained positive.

Following the earnings release the fiscal 2011 estimates moved up significantly to $1.47 per share from $1.40 per share and for fiscal 2012 estimates increased by 10 cents to $1.85 per share.

With respect to earnings surprises, AAR Corp. had a positive track record in the preceding four quarters. In all the last four quarters it recorded positive surprises with an average positive earnings surprise of 8.89% over the last four quarters, meaning that the company has beaten the Zacks Consensus Estimate by that measure.

Our Recommendation
We are optimistic on the AWS acquisition as it is likely to benefit the company’s results in the long term with $175 million in revenues annually. Moreover, the company is expected to perform well once the market recovers due to its industry leading supply chain and MRO positions. However, the increase in net debt and uncertain macro economic conditions are matters of concern.

Further, the cyclical nature of the aviation industry, huge capital requirement and the fluctuating nature of fuel price are also issues. Thus, we reiterate our Neutral recommendation on the stock. The stock also currently retains its short term “Hold” rating, equivalent to a Zacks #3 Rank.