UPDATE: Morgan Stanley Downgrades Atlas Air Worldwide and Aircastle to Underweight Amid Deteriorating Demand in Air Cargo
In a report released Tuesday, February 11, Morgan Stanley analysts outlined key factors for the downgrade from Equal-weight to Underweight for both Atlas Air Worldwide (NASDAQ: AAWW) and Aircastle (NYSE: AYR). In addition to this, Morgan Stanley announced the companies price targets at $30 and $18, respectively.
In examining the bigger picture of international air cargo, Morgan Stanley's John Godyn listed four factors that are contributing to the deteriorating demand:
- -Modal shift to ocean as premium products such as international air cargo are impacted by trade down
- -Export/Import volume weakness vs. domestic air cargo as GDP growth across international economies decelerates
- -Elevated fuel prices dampening demand for long-haul air cargo
- -Continued pressure from product digitization and miniaturization
Turning to company specific items, Godyn highlighted specific issues each company will face in moving forward.
Atlas Air Worldwide
One of the big risk faced by Atlas is its high exposure to the demand of air cargo. Godyn makes note of this stating, "100 percent of Atlas Air Worldwide fleet is cargo aircraft of which Atlas Air Worldwide is almost entirely 747F exposed. We expect the 747 to under perform other cargo assets as the 777 increasingly replaces the 747 as the flagship."
In evaluating Aircastle, Godyn points to the company's air cargo exposure by comparing it to its closest competitor noting, "We believe the combination of out-sized cargo exposure along with relatively lackluster return on equity vs. peers does not justify a P/BV premium to FLY." Godyn Continued, "Aircastle is trading above its historical fair value range on a
P/BV vs. return on equity basis".
At last check, Atlas Air Worldwide is down 3.3 percent at $33.60 and Aircastle is down 3.2 percent at $17.93
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