AerCap Holdings NV Stock Is Estimated To Be Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of AerCap Holdings NV (NYSE:AER, 30-year Financials) gives every indication of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $59 per share and the market cap of $7.7 billion, AerCap Holdings NV stock is believed to be fairly valued. GF Value for AerCap Holdings NV is shown in the chart below.


AerCap Holdings NV Stock Is Estimated To Be Fairly Valued
AerCap Holdings NV Stock Is Estimated To Be Fairly Valued

Because AerCap Holdings NV is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 6.3% over the past five years.

Link: These companies may deliever higher future returns at reduced risk.

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. AerCap Holdings NV has a cash-to-debt ratio of 0.04, which which ranks in the bottom 10% of the companies in Transportation industry. The overall financial strength of AerCap Holdings NV is 3 out of 10, which indicates that the financial strength of AerCap Holdings NV is poor. This is the debt and cash of AerCap Holdings NV over the past years:

AerCap Holdings NV Stock Is Estimated To Be Fairly Valued
AerCap Holdings NV Stock Is Estimated To Be Fairly Valued

It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. AerCap Holdings NV has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $4.3 billion and loss of $2.38 a share. Its operating margin is 48.83%, which ranks better than 98% of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of AerCap Holdings NV at 7 out of 10, which indicates fair profitability. This is the revenue and net income of AerCap Holdings NV over the past years:

AerCap Holdings NV Stock Is Estimated To Be Fairly Valued
AerCap Holdings NV Stock Is Estimated To Be Fairly Valued

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of AerCap Holdings NV is 6.3%, which ranks better than 67% of the companies in Transportation industry. The 3-year average EBITDA growth is -6.1%, which ranks worse than 75% of the companies in Transportation industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, AerCap Holdings NV's return on invested capital is 4.88, and its cost of capital is 6.31. The historical ROIC vs WACC comparison of AerCap Holdings NV is shown below:

AerCap Holdings NV Stock Is Estimated To Be Fairly Valued
AerCap Holdings NV Stock Is Estimated To Be Fairly Valued

Overall, the stock of AerCap Holdings NV (NYSE:AER, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 75% of the companies in Transportation industry. To learn more about AerCap Holdings NV stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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