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Solid Liquidity Boosts Air Lease (AL) Amid High Expenses

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Air Lease Corporation AL currently benefits from strong liquidity, among other factors. However, rising operating expenses and a decline in collection rates are a oncern.

Air Lease Corporation’s (AL) first-quarter 2022 earnings (excluding $5.57 from non-recurring items) of $1.36 per share surpassed the Zacks Consensus Estimate of $1.04. The bottom line surged 94.3% year over year despite increased costs. Quarterly revenues of $596.7 million outperformed the Zacks Consensus Estimate of $565.2 million. The top line increased 25.7% year over year, owing to a 21% increase in revenues from the rental of flight equipment, which contributed 94.9% to the top line.

How is Air Lease Faring?

Strong freight and cargo markets are supporting demand for the company’s wide-body passenger aircraft. Continued recovery in airline operations is further driving lease demand. Higher lease demand and rising interest rates and inflation indicate a rising lease rate environment, which bodes well for Air Lease.

The sequential improvement in Air Lease’s cash and cash equivalents is encouraging. The company’s cash and cash equivalents improved to $1.49 billion at the end of the first quarter of 2022 compared with $1.09 billion at the 2021-end. Its current ratio at the end of the first quarter was 2.78, implying that the company can pay its short-term obligations.

Steady growth in the fleet is driving Air Lease’s top line (up 3.6% year over year in 2021). Total revenues jumped 25.7% year over year in the first quarter of 2022. The company purchased 53 new aircraft in 2021 with investments totaling $3.6 billion. During the first quarter, the company took delivery of a total of nine aircraft, representing approximately $490 million in aircraft investments.

However, rising operating expenses threaten the company's bottom line. Total expenses climbed 13% year over year to $1.55 billion in 2021, primarily due to higher interest expenses and depreciation of flight equipment costs. Total operating expenses jumped more than 100% year over year in the first quarter of 2022, primarily due to the write-off of the Russian fleet.

A decline in the company’s collection rate (total cash collected from lease rentals and maintenance reserves) in the first quarter is a little concerning. The collection rate was 96.9% for the March quarter of 2022 compared with 99.3% in the December quarter of 2021. With coronavirus concerns persisting, the company’s collection metric might remain under pressure.

Zacks Rank & Key Picks

Air Lease currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader Zacks Transportation sector are Ryder System, Inc. R, C.H. Robinson Worldwide, Inc. CHRW and GATX Corporation GATX.

Ryder has a trailing-four quarter surprise of 48.2%, on average, with its earnings surpassing the Zacks Consensus Estimate in all the last four quarters. R is benefiting from improving economic and freight conditions in the United States.

Revenues in all the segments rose (on higher rental revenues, new business and favorable pricing) in first-quarter 2022. R currently carries a Zacks Rank #2 (Buy).

The expected long-term (three-to-five years) earnings per share (EPS) growth rate for C.H. Robinson is pegged at 9%. Improving freight market conditions are aiding CHRW.

In first-quarter 2022, the top line improved 41.8%, owing to favorable truckload pricing for customers and handsome profits in ocean freight. CHRW currently carries a Zacks Rank of 2.

GATX has a trailing-four quarter surprise of 40.1%, on average, with its earnings surpassing the Zacks Consensus Estimate in all the last four quarters. The gradual improvement in the North American railcar leasing market is a huge positive for GATX.

Driven by the upsides, the stock has risen 0.9% in the past year.  GATX currently has a Zacks Rank of 2.


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