AerSale Corp.

ASLE Details

AerSale Corp. (NASDAQ: ASLE) is a worldwide provider of aftermarket commercial jet aircraft and its parts to passenger and cargo airlines, Original Equipment Manufacturers (OEMs), and Maintenance, Repair, and Overhaul (MRO) service providers. The company operates in two segments, namely, 1) Asset Management Solutions (AMS), which provides short-term and long-term leasing solutions to passenger and cargo operators. 2) Tech Ops, comprised of MRO activities, sale of engineered solutions, and other serviceable products. As of May 13, 2021, the company's market capitalization stood at USD 480.17 million.

Boeing 757 passenger to freighter (P2F) conversion: On January 05, 2021, the company announced that it had introduced the conversion of Boeing 757-200 aircraft from passenger-to-freighter (P2F) at its Goodyear, Arizona facility. The company has earlier acquired 24 such aircraft and intends to monetize the fleet through this conversion at a time when a global shortfall in freight capacity is augmented by a sharp decrease in passenger flights whose cargo holds typically carried the majority of global air freight.

Q1FY21 Results: The company reported a 2.27% increase in net revenue to USD 58.43 million in Q1FY21 (ending March 31, 2021) compared to USD 57.13 million in Q1FY20 (ending March 31, 2020). The increase in total revenue was propelled by a 10.94% increase in revenue from the TechOps segment. The company recorded a steep uptick in income from operations by 595.14% to USD 12.88 million in Q1FY21 compared to USD 1.85 million in Q1FY20, driven by the proceeds from the extension in the payroll support program provided by the U.S. Department of the Treasury on March 4, 2021.

Key Risks: The company is a provider of products and services to the commercial aviation industry. Passenger airline traffic declined significantly due to the outbreak of the Covid-19 pandemic since March 2020, and it has had a material negative impact on the company’s financial state of affairs. If the Covid-19 pandemic continues to result in decreased worldwide commercial activity, it could affect the demand for airline cargo services, which might lead to a decrease in the operational and financial activity of the company.

Outlook: For FY21, the company expects its revenues to be in the range of USD 340 million to USD 360 million and adjusted EBITDA to be in the range of USD 60 million to USD 70 million. The growth in AMS is expected to be led by the monetization of the cargo conversion aircraft. For the TechOps segment, the company is projecting increase contribution from its MRO business activities.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ASLE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: ASLE has declined 10.12% in the past month and is currently leaning towards the lower band of the 52-week range of USD 8.68 to USD 18.35. The stock is currently trading below 200 DMA levels. We have valued the stock using the EV/Sale-based relative valuation methodology and arrived at a target price of USD 12.31. On the technical chart, the next support level is USD 10.10. Considering the correction in the stock price in the past one-month, quick cash conversion cycle, no long-term debt despite being in a capital-intensive industry, and associated risks with the commercial aviation industry, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 11.18, down by 5.33% as of May 13, 2021.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

Strattec Security Corp.

STRT Details