On Monday, Jefferies, a global investment banking firm, initiated coverage on StandardAero Inc (NYSE: SARO) stock with a Buy rating and a price target of $38.00. The new price target suggests a positive outlook for the company's financial performance in the coming years.
The firm's analyst cited several factors for the optimistic stance on StandardAero. A key highlight is the expected compound annual growth rate (CAGR) of 16% in EBITDA through 2027, which would mark a 190 basis points increase to 14.2%. This growth projection is driven by a combination of revenue and operational improvements.
StandardAero's revenue is anticipated to grow at a 12% CAGR until 2027, bolstered by an increase in LEAP engine shop visits and a growing market share in the CFM56 engine sector, which is currently estimated at 1%. Additionally, the company is expected to benefit from market-standard-plus (MSD+) pricing and expansion in its Component Repair and Shop Services (CRS) offerings.
The analyst also noted that StandardAero's strategic investments exceeding $400 million in Component Repair since 2017 are set to yield significant returns. A 5% increase in earnings per share (EPS) is projected for every 10 percentage points of in-sourcing compared to the present internal usage rate of approximately 10%. The CRS segment is forecasted to experience a 20% EBITDA CAGR, leading to an estimated 28% margin.
The Buy rating reflects Jefferies' confidence in StandardAero's growth trajectory and its ability to capitalize on its investments and market position. The company's focus on expanding its services and improving operational efficiency appears to underpin the positive outlook for its stock performance.
In other recent news, Standard Aero Inc. has made significant strides in the aerospace engine aftermarket. The company recently completed its initial public offering (IPO), selling 69 million shares at $24.00 per share. The proceeds, approximately $1.201 billion, were used to redeem all outstanding senior unsecured PIK toggle notes due 2027 and to partially repay the 2024 Term B-1 Loan Facility and the 2024 Term Loan B-2 Facility.
UBS initiated coverage of Standard Aero, assigning a Neutral rating and setting a price target of $34.00, while RBC Capital Markets and JPMorgan both initiated coverage with positive outlooks. RBC Capital assigned an Outperform rating with a price target of $37.00, and JPMorgan gave an Overweight rating with a price target of $36.00.
These recent developments underline Standard Aero's growth trajectory and commitment to its strategic objectives. The company is well-positioned to capitalize on the expanding engine maintenance, repair, and overhaul (MRO) market, with analysts forecasting a significant growth in the company's sales and margins over the coming years.
InvestingPro Insights
To complement Jefferies' optimistic outlook on StandardAero Inc (NYSE: SARO), recent data from InvestingPro provides additional context for investors. The company's revenue for the last twelve months as of Q2 2024 stood at $4.84 billion, with a quarterly revenue growth of 16.41% in Q2 2024. This aligns with the analyst's projection of strong revenue growth in the coming years.
However, InvestingPro Tips highlight some challenges. StandardAero currently suffers from weak gross profit margins, with the latest data showing a gross profit margin of 13.96%. This suggests that while revenue is growing, the company may need to focus on improving its cost structure to boost profitability.
Another InvestingPro Tip indicates that StandardAero is not profitable over the last twelve months, with a negative diluted EPS of $0.05. This underscores the importance of the projected EBITDA growth and operational improvements mentioned in the Jefferies analysis.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for StandardAero, providing a deeper understanding of the company's financial health and market position.
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