In Flights with Air Lease

08/14/2014 7:00 am EST

Focus: STOCKS

Tom Bishop

Founder, BI Research

This recommended stock is a leading aircraft leasing company; it is currently leasing over 200 aircraft to 80 customers in 47 countries, notes small-cap expert Tom Bishop, editor of BI Research.

Since starting up operations just four years ago, Air Lease (AL) now has $10 billion in total assets with 207 aircraft in its operated lease portfolio, which are leased out to a customer base of 77 airlines in 47 countries. In fact, over 90% of its aircraft are leased internationally. 

The firm keeps the age of its fleet down by buying brand new airplanes and often selling them when they reach seven-to-eight years old. Its fleet currently has an average age of 3.8 years.

The company is benefiting from a trend towards leasing, a trend towards improving fuel economy, and one of the most robust airline industries in years, in part, due to the continuing economic rebound.

Investors Business Daily shows Air Lease #31 in its elite IBD-50 with a relative earnings rating of 97, relative strength of 84, and an overall composite rating of 97 (99 is the highest), which is third best among the 20 companies in the leasing industry.

In addition, Zacks shows the shares to be rated #1. So,when I say the shares remain a Buy, you might draw some additional confidence from these rankings.

The company continues to buy aircraft, for example, recently placing an order for 20- 737 Max 8 aircraft and 6- 777-300ERs for $3.9 billion. And AL continues to place aircraft, for example, signing a deal with Air New Zealand for five new Airbus A320neo aircraft.

Air Lease recently reported EPS of $0.58, which was up an impressive 41% over last year and which handily beat the $0.52 consensus (by almost 12%).  Revenues increased 23% to $256 million. 

During the quarter, the company delivered 13 aircraft for lease and sold two. The Company expects to receive and place ten aircraft in Q3. The debt-to-equity ratio is 2.39 and remains within the Company’s target of 2.5 to 1. 

All of the aircraft the company has on order for delivery to customers in 2014 and 2015 are placed and it is well on the way to filling its book for 2016. Demand for new aircraft continues to rise and, in fact, exceeds manufacturing capacity to deliver them. 

Furthermore, management said many airlines are behind in addressing their needs for upcoming years and when they do they will find that aircraft are not available in the timeframe they need them.

Therefore, these airlines will be increasingly turning to Air Lease to fill their needs with operating leases. So, everything looks fine here and the shares remain a Buy.

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