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Strong aftermarket demand drives Bernstein's outperform rating on StandardAero stock

EditorEmilio Ghigini
Published 10/28/2024, 04:43 AM
SARO
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On Monday, StandardAero Inc (NYSE: SARO) stock received an Outperform rating from Bernstein SocGen Group, accompanied by a price target of $39.00. The aerospace company, which focuses on aircraft engine maintenance, repair, and overhaul (MRO), was recognized for its potential in the robust commercial aerospace aftermarket.

StandardAero, described as the largest pure-play aircraft engine MRO firm, is projected to generate approximately $5.2 billion in revenues for the year 2024. The company went public earlier this month, on October 2nd, and since then has been identified as a beneficiary of the current surge in the aerospace aftermarket. This surge is attributed to the extended use of many aircraft, stemming largely from Boeing (NYSE:BA) and Airbus's inability to fulfill delivery demands.

The analyst pointed out that other companies in the sector, such as GE, TDG, and HEI, have seen their shares climb due to the strong demand in the aftermarket. The ongoing capacity shortages in MRO are expected to keep exerting upward pressure on the market throughout the decade.

This positive outlook for StandardAero is rooted in the company's positioning within an industry experiencing significant growth. The demand for MRO services is likely to persist as airlines continue to extend the life of their existing fleets due to new aircraft delivery delays.

The $39.00 price target set by Bernstein SocGen Group reflects confidence in StandardAero's growth trajectory and its ability to capitalize on the current market dynamics. The Outperform rating suggests that the analyst sees the company outpacing the overall market or its sector in the foreseeable future.

In other recent news, StandardAero Inc. has made significant strides in the aerospace engine aftermarket. The company has successfully completed its initial public offering (IPO), selling a total of 69 million shares at $24.00 per share. The net proceeds of approximately $1.201 billion were strategically 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.

Investment banking firms Jefferies, UBS, RBC Capital Markets, and JPMorgan initiated coverage on StandardAero with varying outlooks. Jefferies has a bullish stance, citing a projected compound annual growth rate (CAGR) of 16% in EBITDA through 2027, driven by revenue and operational improvements. UBS, however, assigned a Neutral rating due to valuation concerns despite recognizing potential growth opportunities.

RBC Capital Markets assigned an Outperform rating, highlighting StandardAero's strong presence in the engine maintenance, repair, and overhaul (MRO) sector. JPMorgan also gave an Overweight rating, forecasting a double-digit CAGR in sales from 2024 to 2027. These recent developments underline Standard Aero's growth trajectory and commitment to its strategic objectives.

InvestingPro Insights

To complement the positive outlook presented by Bernstein SocGen Group, recent data from InvestingPro offers additional context on StandardAero's financial position. 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 $5.2 billion in revenues for 2024, indicating StandardAero is on track to meet these expectations.

However, InvestingPro Tips highlight some potential challenges. The company currently suffers from weak gross profit margins, with the latest data showing a gross profit margin of 13.96%. Additionally, StandardAero was not profitable over the last twelve months, with a negative EPS of $0.05.

On the positive side, StandardAero's liquid assets exceed its short-term obligations, suggesting a stable short-term financial position. This could be crucial as the company aims to capitalize on the growing demand in the aerospace aftermarket.

Investors should note that StandardAero is trading at high valuation multiples, including EBIT, EBITDA, and Price/Book ratios. The P/B ratio stands at 8.73, which may indicate investor optimism about the company's future prospects in line with the analyst's positive outlook.

For those interested in a deeper analysis, InvestingPro offers 7 additional tips for StandardAero, providing a more comprehensive view of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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