AerCap: Board Before Takeoff - The Next 5 Years

Aug. 21, 2019 12:57 PM ETAerCap Holdings N.V. (AER)36 Comments
FognFriction profile picture
FognFriction
49 Followers

Summary

  • AER, an airplane leasing company, has reduced the float by 40% the past five years due to its buyback strategy.
  • Over the same period, management reduced the average age of the fleet & extended the average lease term, providing a predictable income stream.
  • Using the previous 5 year buyback history as a base, we modeled to 2024 & assess AER shares could appreciate to $95-$140.

AerCap (NYSE:AER)'s buyback strategy amid a depressed share price, predictable income stream and strong tailwinds has the potential to reward patient bulls with annual returns in excess of 14% annually over the next five years.

“The talent of the strategist is to identify the decisive point and to concentrate everything on it, removing forces from secondary fronts and ignoring lesser objectives.” - Carl Von Clausewitz.

The Math

In examining AerCap (AER), we choose to primarily focus on the last five years to see the effects of the AER buyback strategy. The chart below provides a snapshot of revenue, operating income and net income over this period.

The business remained flat after a spike in revenue in 2014 which was due to an increase in earning assets. AER's operating income and net income fluctuated with a range of 1.17B in net income in 2014 to 1.01B in 2018. Based on this chart below, one may assume AER is dead money....but they'd be wrong.

This chart displays earnings per diluted share over the same period. AER's EPS increased 50.4% from $4.54 to $6.83 over 5 years due to their buyback strategy. Following a growth in assets in 2014, AER began buying back shares, recognizing their shares were trading below their book value. While the book values of companies tend to be varied and could be far from reality, AER's book was backed by real assets, airplanes. AER management realized they could buyback shares, or portions of their airplanes, at a discount and thus increase the book value per share for shareholders.

Lets pretend an airplane at book value is worth $100 and there are 10 shares, my single share is worth $10 of the plane. If their are only 5 shares, my share is now worth $20 and if there are 3 shares, my share is now worth $33 - you see

This article was written by

FognFriction profile picture
49 Followers
I am an individual investor and primarily focused on value. My holdings are typically several years, although I am constantly checking my thesis. I will pursue growth opportunities if they are on sale. I decided to write on SA to better understand investment opportunities and to organize thoughts before making a decision. Additional Disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

Disclosure: I am/we are long AER, ODP. 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.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

Recommended For You

Comments (36)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.