Air Lease Corporation (AL) is currently mired in multiple headwinds, which, we believe, have made it an unimpressive investment option.
Let’s delve deeper.
Unimpressive Price Performance: Air Lease has gained 17% so far this year but underperformed its industry’s surge of 48%.
Image Source: Zacks Investment Research
Weak Zacks Rank: Air Lease currently carries a Zacks Rank #4 (Sell).
Southward Earnings Estimate Revision: The Zacks Consensus Estimate for fourth-quarter 2024 earnings has been revised 13% downward over the past 90 days. For 2024, the consensus mark for earnings has moved 8.6% south in the same time frame. The bearish alterations in estimate revisions underscore a notable decline in brokers’ confidence in the stock.
Earnings Expectations: Downbeat earnings expectations cast a shadow over a company’s prospects. For fourth-quarter 2024, AL’s earnings are expected to decline 38.10% year over year. For 2024, AL’s earnings are expected to decline 3.7% year over year.
Other Headwinds: Air Lease is currently facing multiple headwinds, such as higher interest expenses, a rise in operating expenses and a debt-laden balance sheet. Let’s discuss them in detail.
Higher interest expenses due to an increase in the composite cost of funds and overall outstanding debt balance are hurting Air Lease’s bottom line. AL anticipates its interest expenses to continue to increase as its average debt balance outstanding increases with the growth of its fleet.
Rising operating expenses (due to higher selling, general and administrative expenses; interest expenses and depreciation of flight equipment costs) pose a threat to the company’s bottom line. During 2023, operating expenses rose 18.6% to $1.99 billion. In the first nine months of 2024, operating expenses rose 9.8% year over year to $1.63 billion.
Air Lease’s liquidity position is a concern. Cash and cash equivalents of $460.78 million at the end of the third quarter of 2024 were lower than the $20.16 billion of debt financing and net of discount and issuance costs. This implies that the company does not have enough cash to meet its debt burden. AL’s high debt levels are concerning. Long-term debt increased to $20.1 billion at the third quarter of 2024-end from $18.6 billion in the year-ago quarter.
Some better-ranked stocks from the Zacks Transportation sector are Expeditors International of Washington, Inc. (EXPD) and Wabtec Corporation WAB. Each stock presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
