Although FLY Leasing (NYSE:FLY) has transformed in a meaningful way since 2015, you really wouldn't know it from the share price performance. The stock is down about 10% since my last write-up on the company, and even though the intervening period hasn't been very good for any of the publicly-traded aircraft lessors (companies like AerCap (NYSE:AER), Air Lease (NYSE:AL), and Aircastle (NYSE:AYR)), FLY has been the weakest performer of this bunch.
I believe some of the underperformance can be explained by the company's weaker lease rate factor, its lower adjusted pretax margin, and its lower adjusted ROE. It's possible that the market also sees FLY Leasing as more vulnerable to a tighter credit market and an aircraft market where sale-leaseback transactions are less profitable due to an influx of capital into the market. Still, FLY has been doing better of late, and while the entire sector has been strong over the past year, FLY's lagging performance doesn't seem entirely fair. While FLY Leasing's lack of a dividend will be a negative to some investors, reallocating the capital to buybacks makes sense in this case, and I believe these shares are undervalued below $16 to $18 a share.
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FLY Leasing Has Little To Show For Meaningful Improvement