Buybacks in Flight

11/02/2015 9:00 am EST


David Fried

Editor, The Buyback Letter

David Fried specializes in stocks that are buying back their own shares; in his The Buyback Letter, the advisor highlights two new additions to his model portfolio, both in the aviation sector.

AerCap Holdings (AER), headquartered in Amsterdam, is an integrated global aviation company with a leading market position in aircraft and engine leasing, trading, and parts sales.

It has some 1,730 owned, managed, or on-order aircraft in its portfolio. AerCap serves over 200 customers in some 90 countries with fleet solutions and provides part out and engine leasing services through its subsidiary, AeroTurbine.

The company recently sold ten aircraft, bringing the total amount of aircraft sold to date in 2015 to $1.2 billion.

Last year, it purchased 33 aircraft with a total value of $2.3 billion. It has future commitments for aircraft purchases of $28 billion between now and the end of 2022.

Analysts looking for value in stocks have noted it is impressive in three particular areas:

  • The forward PE of 7.08 means that investors are paying $7.08 for each dollar in expected earnings this year. The overall average is 11.17.
  • The price/earnings to growth ratio of 0.73, suggests it is trading as a relative bargain right now (industry average 1.18). The lower the PEG ratio, the more the stock may be undervalued given its earnings performance.
  • The firm earnings estimate revisions have been positive, as analysts have been raising their estimates for the company.

AerCap recently reported strong results with both revenue and EPS beating analyst estimates. EPS of $1.73 were better than analyst estimates by 41 cents and its revenues were ahead of consensus estimates by $60 million.

The company finished the second quarter with $44.1 billion of total assets. AER reduced shares outstanding by 7% in the last 12 months.  

Alaska Air Group (ALK) is the parent company of Alaska Airlines and Horizon Air. It serves more than 100 cities through a network in the US, Canada, and Mexico.

Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in the J.D. Power North American Airline Satisfaction Study for eight consecutive years from 2008 to 2015.

ALK's growth prospects are considered great and its strengths can be seen in multiple areas, such as...

  • Revenue growth is higher than industry average of 7.3%.
  • The stock has shown solid price performance; it surged by 87% over the past year, outperforming the S&P 500 Index during the same period.
  • The firm has an impressive record of earnings per share growth; during the past fiscal year, ALK earned $4.43 versus $3.59 in the prior year; this year the market expects earnings of $6.35 versus $4.43.
  • The firm has compelling growth in net income, which increased by 41.8% compared to the same quarter one year prior, rising to $234 million.
  • The company has shown expanding profit margins, now 41.68% gross profit margin. (Net profit margin of 16.28%, above the industry average.)

Meanwhile, management has reduced the shares outstanding by 5.6% in the last 12 months.

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