We have issued Strong Buy recommendation on AerSale Corporation (NASDAQ: ASLE), a leading provider of aftermarket aircraft services and equipment, with a near-term price target of >$47. ASLE offers immediate upside as several imminent catalysts, including FAA approval and an initial order for AerAware, the Company’s game-changing wearable heads up display (“HUD”) product, as well as a large upward revision to FY 2021 guidance, which could result in a doubling of the Company’s share price within a month.
Prescience Point believes that AerSale, a leading provider of aftermarket aircraft services and equipment, is one of the most obvious and attractive investments it has ever seen. The Company is projected to grow its adjusted, fully-diluted EPS at a robust CAGR of 231% from FY 2020 to FY 2022. Yet, despite the Company’s impressive growth trajectory, its shares are trading at just 10x FY 2022 earnings, while its peers are trading at 25x – 30x. Prescience Point believes AerSale offers immediate upside as several imminent catalysts could result in a more than doubling of its share price within a month.
These imminent catalysts include:
- Expected FAA approval of AerAware, the Company’s game-changing wearable head-up display (HUD). Adapted from military-grade fighter jet technology, AerAware will enable commercial airline pilots to see through inclement weather such as snow, rain, sleet and fog. AerSale reached a major milestone in late September by completing the final round of FAA flight testing and related requirements, and its certification work is now essentially finished. Based on prior comments by AerSale management, Prescience Point expects FAA approval should be granted within a few weeks of final flight testing – most likely before mid-November.
- Prospects of a large launch order for AerAware. Several major airlines, possibly including United Airlines, Alaska Airlines and Southwest Airlines, are believed to have expressed interest in and flown test flights with The airlines’ interest reflects AerAware’s potential to deliver substantial operational savings by significantly reducing or perhaps even eliminating flight delays and diversions caused by inclement weather. Based on public comments by AerSale management, it appears to be a near certainty that the Company will receive an initial large order from a major airline soon before or immediately after receiving FAA approval, which, as noted above, is expected to occur before mid-November.
- Potential upward revision to 2021 guidance. Based on AerSale’s strong YTD performance, Prescience Point believes the Company will substantially raise its FY 2021 adjusted EBITDA guidance when it reports Q3 earnings in early November. Current guidance is $60 million-$70 million, although the Company has already generated $46.9 million of adjusted EBITDA through the first two quarters of the year, including $30.4 million in Q2. AerSale only needs to generate a total of $23.1 million in the 2021 second half to exceed the top-end of its current guidance. Since management disclosed, during its Q2 2021 earnings call, sale commitments for 11 converted 757s, the majority of which will likely be sold by the end of 2021, Prescience Point expects aircraft sales in both Q3 and Q4 will be double the level of Q2. Even with conservative assumptions for the remaining business lines, AerSale thus has the potential to generate $62.4 million of adjusted EBITDA in the second half of FY 2021, and $109.4 million for the full year.
Prescience Point projects AerSale will generate $1.08 of adjusted, fully-diluted EPS in FY 2021. Based on conservative projections for the Company’s core business, and assuming the delivery of 250 AerAware units to its launch customer in FY 2022, Prescience Point estimates that the Company will generate $1.89 of adjusted, fully-diluted EPS in FY 2022.
Given that AerSale generates higher margins and is growing at a much faster rate than its peers, we believe its shares should, at the very least, trade at a multiple that is in-line with its comparables. Based on our projection of $1.89 of adjusted, fully-diluted EPS in FY 2022, and assuming a conservative multiple of 25x, we value AerSale shares at $47.13 today, which represents a 146.5% premium to the current share price of $19.12.