Steady AerCap Continues To Offer Value

Aircraft leasing company AerCap Holdings (NYSE:AER) has done relatively well this year, with the shares slightly ahead of the S&P 500 on a year-to-date basis and slightly behind on a trailing 12-month comparison. The company has also continued to outperform its peers, with the shares outperforming Air Lease (NYSE:AL), Fly Leasing (NYSE:FLY) and Aircastle (NYSE:AYR) over the past year. Air traffic growth remains healthy on a global basis, oil prices are not yet at problematic levels for airlines, and rate increases give investment grade-rated AerCap an ongoing opportunity to take advantage of its better access to capital.

I continue to believe AerCap shares are undervalued, though the environment over the next couple of quarters may not be as conducive to outperformance. A shift away from significant asset sales is going to weigh on reported earnings, and a shift back toward portfolio growth is going to redirect capital away from share buybacks for a time. Even with that turbulence, though, I believe these shares are undervalued below the low-to-mid $60s.

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Steady AerCap Continues To Offer Value

Fortress Transportation And Infrastructure Investors Benefiting From Improving Energy Markets And Growing Asset Deployment

Hindsight being what it is, Fortress Investment Group may wish they had waited a little bit to take Fortress Transportation and Infrastructure (FTAI) public. Energy infrastructure was supposed to be a significant part of this infrastructure fund’s focus, but the company hit the market just in time to see other energy companies dive into their bunkers during the sharp downturn in the energy market. That has complicated the company’s asset deployment/investment plans, but investment is starting to return to the energy markets and FTAI has managed to build up its aviation leasing business in the meantime.

These shares are up about 50% from when I last wrote about them, as investors have turned more bullish on the prospects for deploying capital into markets like energy and as FTAI has put capital to play into assets that are starting to help support the dividend. With that move, the shares are no longer significantly undervalued, but they do offer some modest upside and a dividend yield above 7% that should be supported by funds available for distribution by year-end.

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Fortress Transportation And Infrastructure Investors Benefiting From Improving Energy Markets And Growing Asset Deployment

Seeking Alpha: Sluggish Investments And Changing Markets Have Hammered FTAI

Back in the summer of 2015, Fortress Transportation and Infrastructure (NYSE:FTAI) looked like an interesting new opportunity in the infrastructure investment space to go alongside more established names like Brookfield Asset Management (NYSE:BAM) and Macquarie Infrastructure (NYSE:MIC). Although there was the noted risk of the difficulty of making cash flow projections based on little more than uncommitted capital and management intentions, there appeared to be attractive opportunities in areas like aviation leasing, port development, and terminal operations.

Unfortunately, those initial projections proved much too generous, and the shares have lost about 40% of their value. Management has moved much slower than I'd anticipated in investing/deploying capital, and the company has seen sentiment around terminal operations shift dramatically in the wake of the severe drop in oil prices and the subsequent slowdown in U.S. onshore production. Now the company finds itself in a position where the distributable funds generated from operations may not fund its dividend in 2016 unless those investments accelerate.

I understand why the market has turned on this name, and I can certainly appreciate less risk-tolerant investors taking the position that this is untouchable until the company makes some meaningful use of that nearly $900 million in investable funds. That said, for more aggressive investors, this could still be an interesting opportunity with both a capital gains and income aspect.

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Sluggish Investments And Changing Markets Have Hammered FTAI

Seeking Alpha: After A Transformative Deal, Can AerCap Holdings Climb Higher?

Take a very skilled management team and give them more than four times the assets to work with and very good things might happen. That's a quick summary of what I believe will happen now that AerCap Holdings (NYSE:AER) has closed its acquisition of AIG's (NYSE:AIG) huge ILFC aircraft leasing business. AerCap is now hugely leveraged to the global commercial airline sector, with a large in-the-money order book and the potential to generate substantial cash not only from core leasing activities, but also more effective receivables collection and significant aircraft sales.

But how much do you want to pay for this? I'm comfortable with the general idea that the substantially larger asset base at AerCap and the fundamental changes in the global airline business (particularly growth in emerging markets) renders historical multiples moot. At a 1.25x premium to estimated 2015 book value I believe these shares are undervalued, but I wouldn't completely ignore the risk that commercial aerospace companies are building toward oversupply.

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After A Transformative Deal, Can AerCap Holdings Climb Higher?

Seeking Alpha: AerCap Holdings At A Good Cruising Altitude

With commercial aviation demand continuing to grow quite well in developing markets and the funding environment in developed markets getting better with each quarter, this is a pretty good time to be an aircraft leasing company. It's not so surprising, then, that AerCap Holdings (AER) shares are up more than 65% over the past year.

As for the future, I would argue that AerCap is still looking at a multi-year period of strong operating conditions. AerCap's focus on smaller airlines in developing markets is in tune with where the growth is likely to be, and the company's focus on maintaining a younger fleet and demonstrated skill in managing credit/default risk (as well as selling aircraft to maximize portfolio value) should result in significant cash flows in the coming years. Valuation for leasing companies is trickier and more subjective than for many other types of companies, but I nevertheless maintain that AerCap is still about 10% to 15% undervalued today - not the most appealing bargain out there, but still undervalued and with the potential of a dividend in the coming years.

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AerCap Holdings At A Good Cruising Altitude

Seeking Alpha: Do Boeing Investors Need To Worry About The Order Book?

Commercial aerospace has moved from a state where investors worried about whether orders would materialize to worrying about the profitability and delivery timelines for those orders. More recently, though, the CEO of a major aircraft leasing company has sounded a warning that aircraft order rates may be unsustainable and suggested that the rich order books at Boeing (BA) and Airbus may end up being something of a mirage.

Warnings From Someone Who Ought To Know
Late in February, Aengus Kelly, the CEO of AerCap Holdings (AER), warned in an interview that the order books at Boeing and Airbus may never be fully realized. For those not familiar with AerCap, it's the third-largest aircraft lessor in the world and presently the largest publicly-traded lessor.

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Do Boeing Investors Need To Worry About The Order Book?