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Why AAR Corp (AIR) Is Tumbling on Friday

NEW YORK (TheStreet) -- AAR Corporation (AIR - Get Report) is dropping on Friday after third-quarter earnings and sales disappointed Wall Street.

By midday, shares have taken off 9.4% to $28.01.

Wood Dale, Ill.-based AAR reported net income of 45 cents a share in the three months to February. Analysts surveyed by Thomson Reuters had anticipated earnings of 47 cents a share.

Revenue was 8.8% lower year over year to $474.4 million. Analysts had forecast $51.23 million.

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TheStreet Ratings team rates AAR CORP as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate AAR CORP (AIR) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, solid stock price performance and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.2%. Since the same quarter one year prior, revenues slightly increased by 5.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.70, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.12, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has increased to $38.80 million or 43.17% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 4.99%.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 69.33% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • AAR CORP has improved earnings per share by 13.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AAR CORP reported lower earnings of $1.36 versus $1.66 in the prior year. This year, the market expects an improvement in earnings ($1.97 versus $1.36).

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