On Friday, Benchmark raised the share price target for FTAI Aviation (NASDAQ: FTAI) to $100 from the previous $45 while maintaining a Buy rating on the stock. The adjustment reflects an optimistic outlook on the company's market value amid aerospace industry challenges.
The firm's analysis indicates that structural issues in OEM manufacturing and capacity have increased the value of FTAI's aircraft and engine leasing portfolio.
The airline industry's reduced green-time during the COVID pandemic, coupled with a current shortage of new OEM builds and strong passenger demand, is driving a trend towards multi-year fleet leasing acquisitions. This shift is seen as a significant factor in the reevaluation of FTAI's assets.
Moreover, FTAI's engine module swap business has shown remarkable growth, starting from scratch and now projecting over $200 million in EBITDA, as MRO shops focus on reducing turnaround times for cost savings.
Despite some market perspectives suggesting limited growth potential for FTAI Aviation's stock without FAA PMA approvals, Benchmark disagrees, envisioning a scenario where the company's ecosystem, excluding PMA approvals, could reach the new $100 target.
Key factors contributing to this positive outlook include an anticipated $150 million insurance payout, an asset sale of a similar amount with reinvestment opportunities at over a 25% margin, and a significant portion of the engine portfolio transitioning into higher rate contracts.
The report also highlights the introduction of the new V2500 engine support leg as a potential growth driver for FTAI Aviation. Should PMA approvals be granted, Benchmark sees a possible increase in the stock's price target to over $130, as PMAs could enhance margins by approximately 10,000 basis points, stimulate sale lease-backs, and foster organic growth.
Benchmark concludes by comparing FTAI Aviation with other players in the aftermarket sector, noting that FTAI could join the ranks of HEI and TDG, given its Aerospace Parts segment's 35% margin, which stands above HEI's 25% margin.
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