10-Year book value chart
As the below chart highlights, the book value was typically closer to 2-3 times prior to the financial crisis. The typical stock in this group would need to more than double in order to reach that pre-crisis normalcy.
AER Price / Book Value data by YCharts
Earnings potential to grow book value
As with the insurance stocks listed in Part 1, the interesting dichotomy in this group of airplane leasing stocks is that the earnings potential remains strong. All of the stocks have solid earnings generation with solid, but not spectacular growth into 2014. The question is how a stock can trade below book value that generates solid profits that will grow that value.
AerCap Holdings N.V. (NYSE:AER) is expected to grow earnings from $1.97 last year to $2.47 next year. The stock trades at the lowest forward multiple in the group at 7 times those estimates. The company has taken advantage of the stock trading below book value by consistently buying back stock.
Aircastle Limited (NYSE:AYR) is expected to grow earnings from $1.54 in 2013 to $1.82 in 2014. Even on an earnings multiple basis, the stock trades at 8.7 times those forward numbers. The stock provides a solid 4.20% dividend yield.
While Air Lease Corp (NYSE:AL) is the only stock in the group trading above book value, analysts do expect earnings to surge from $1.28 in 2012 to $2.23 next year. On an earnings multiple basis, the stock trades at 12.5 times those forward estimates. Though analysts do expect revenue to surge 31% this year and 27% next year.
FLY Leasing Ltd(ADR) (NYSE:FLY) is expected to see earnings drop from $2.44 in 2012 to $2.03 in 2014. The stock trades at roughly 7.9 times those forward earnings estimates. The stock provides a 5.50% dividend yield.
Bottom line
As mentioned in the original article, investors could probably spend months analyzing the best-positioned stock in the sector. In the end, these stocks will all trade in the general same pattern. Investors can purchase FLY Leasing due to the higher 5.50% dividend yield or AerCap Holdings N.V. (NYSE:AER) for one of the lowest book values and the lowest forward earnings multiple.
Either way, investors need to own this sector along with other financials that continue to trade below book value even after the financial crisis is long over, especially considering that book values in the sector should only grow with a solid basis of earnings and even some growth.
The article Buy These Aircraft Leasing Stocks Still Trading Below Book Value originally appeared on Fool.com.
Mark Holder and Stone Fox Capital Advisors, LLC own shares of AerCap Holdings N.V. (NYSE:AER). The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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