AAR Poised to Benefit from Strength in MRO Space & Cash Fund

We issued an updated research report on AAR Corp AIR on Jun 7. The company is the largest independent maintenance, repair and overhaul MRO provider in North America.

AAR Corp expects its supply chain to see strong growth and continued demand in MRO businesses, driven by its strong position in the thriving global aviation services market. To expand its footprint in this space, the company inaugurated the sixth MRO facility in Rockford last December, which will allow it to maintain every commercial aircraft up to and including the A380.

In this line, the company expects its Aviation Services segment to benefit from its strong position in the growing global aviation market in fiscal 2017. It  is likely to witness a favorable trend in both commercial, and government and defense customers for comprehensive supply chain and maintenance programs as these customers continue to seek ways to reduce their operating cost structure.

Furthermore, the company is currently transferring focus toward its service business and is selling off its large manufacturing operations. It is also reducing its debt level and repurchasing shares from the proceeds of asset divesture.

These initiatives have allowed the company to outperform its broader industry. In the last 12 months, AAR Corp.'s shares have gained 45.5% compared with the Zacks categorized Aerospace-Defense Equipment industry's gain of 17.9%.

Moreover, a favorable financial position allows the company to pay regular dividends. During the fiscal third quarter, the company paid dividend of $2.5 million.

On the flip side, the stock currently has a trailing 12-month P/E ratio of 25.87, while that of the industry is 20.7. This shows that the company is overvalued when compared to its broader industry.

Also, the company faces intense competition from other defense stocks in the market like Rockwell Collins, Inc. COL, Raytheon Company RTN and BAE Systems Plc BAESY.

Zacks Rank

AAR Corp. currently holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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