| Turbulent Skies |
Aircraft leasing stocks are volatile
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The market panic that occurred this summer was a great stress test; it showed just how rough things can get for heavily indebted companies when fixed-income market seize up. It stands to reason that debt-intensive companies could be in real trouble if they cannot access interim financing. Whether this was perception or reality, all three stocks dropped 25%-30% in about six weeks (bottoming out on Aug. 16). So far, they have come back about half way. Interestingly, AER, my favorite, has lagged on the way back after missing estimates for second-quarter earnings by a penny. All three stocks seem to be very well liked by the few analysts who cover them. Earnings and revenue estimates all look to be quite healthy as well. What makes investing in this space difficult is the fact that these companies are starting out with so much leverage, but the expected growth of air travel in the markets where they operate are very compelling. It's estimated at 6%-11% a year compared with below 5% in the U.S. The dynamic between debt and growth should make for continued volatility as the space matures. Given this volatility, I would suggest anyone interested in any of the names take a very small position.