AAR CORP (AIR): what the price assumes

In the published model solve dated 2026-Q2, anchored at $133.19, AAR CORP (AIR) is priced for today's economics sustained for ~5.6 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-08-30 · Exported: 2026-08-31 · Source: https://boothcheck.com/report/AIR

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 9: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 9.8% cost of capital; growth searched up to the 25% self-funding ceiling.

How unusual the bet is: n/a

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.0%); the inversion above states its own rate.

Per-Model Detail (n=11)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Bullet Takeaways

• AAR sells and repairs the parts that keep an aging global fleet flying, and the portfolio has been actively reshaped toward the profitable end of that: the Landing Gear Overhaul business was sold, and in fiscal 2026 the company "completed one acquisition in our Parts Supply segment and three acquisitions in our Repair, Engineering, and Software segment".

• Parts Supply is now the engine of the business, turning third-party sales of $1,487.7 million into $186.2 million of operating income in fiscal 2026, an increase of 18.8% on the prior year.

• The specific risk is the valuation rather than the business: it assumes operating profit compounds at the fastest pace the company can fund out of its own operations for roughly eight years, well above anything its record shows, with about $810 million of net borrowings sitting underneath the assumption.

Bull Case

Aviation aftermarket businesses divide neatly into two kinds. One sells hours of skilled labor in a hangar, which is honest work at thin returns. The other sells parts, which is inventory, distribution rights and pricing power. AAR has spent the last several years walking from the first toward the second, deliberately. It sold the Landing Gear Overhaul business to GA Telesis for "net proceeds of $48 million", bought Triumph's product support operation with debt financing, picked up the maintenance-planning software firm Aerostrat for "$19.0 million", and in fiscal 2026 alone "completed one acquisition in our Parts Supply segment and three acquisitions in our Repair, Engineering, and Software segment". Portfolio surgery of that scale is usually a sign of a company that knows exactly which of its businesses it likes.

The results say the surgery is working where it should. Parts Supply produced third-party sales of $1,487.7 million in fiscal 2026 and $186.2 million of operating income from them, an 18.8% increase driven by new-parts distribution rather than by used material. Distribution rights matter more than they sound: an exclusive agreement to sell an original manufacturer's parts into the aftermarket is a position a competitor cannot simply price against, because they cannot get the part. The 10-K attributes the year's improvement squarely to that activity, noting that "growth of our new parts Distribution activities contributed to exceptional profitability improvements".

The demand underneath it is not a forecast so much as a fleet census. The filing sets out what actually drives the business: sales are "generally affected by such factors as the number, type and average age of aircraft in service, the levels of aircraft utilization", and the company states plainly that it believes "long-term commercial aftermarket growth trends are favorable". Aircraft that stay in service longer need more parts and more repairs, and the constraint on new deliveries has kept older airframes flying. That is the tailwind, and it is measurable rather than aspirational.

The government leg does something different and useful: it decouples part of the revenue from the airline cycle. Sales to the company's major government customers ran to $787.8 million in fiscal 2026, against $687.6 million and $576.1 million in the two prior years, roughly 23.8% of total sales. Those are multi-year sustainment contracts rather than discretionary airline spending, and they kept growing through a period when commercial demand was uneven.

The honest limit on the bull case is where the profitability actually sits today. HEICO converts 23.5% of revenue into operating profit and TransDigm 46.5%; StandardAero, the closest structural comparison in scale and mix, manages 9.0%. AAR is closer to StandardAero than to either of them. The bull argument is not that it deserves the TransDigm end today. It is that the mix is moving in that direction under management that has already sold the businesses that were holding it back, and that fiscal 2026 operating income rose $92.6 million, or 50.0%, on the prior year as the reshaped portfolio started to show.

Bear Case

What today's valuation depends on is not a product launch or a contract award. It is a rate, held for a very long time. The level embeds operating profit compounding at the fastest pace the business can fund out of its own operations, sustained for roughly eight years. Set that against the company's own record and the problem is visible immediately: the assumed pace runs well above what AAR has actually delivered over its history. This is not a business that has compounded profit at extraordinary rates. It is a business that has just had two very good years after selling its worst assets, and the valuation extrapolates the two good years, not the decade.

History is unkind to that extrapolation in general, not just here. Of comparable fast-growing companies, only about 19% sustained a comparable pace over roughly that span. The multiple, meanwhile, sits at the very top of its peer distribution, well beyond the upper quartile. Being the most expensive name in a cohort is defensible when the business is the best in the cohort. On operating profitability AAR is not: HEICO converts 23.5% of revenue into operating profit and TransDigm 46.5%, while AAR runs closer to StandardAero's 9.0%.

The second dependency is debt, and it is the one that removes the margin for error. Net borrowings are about $810 million, roughly 4.6 times operating profit, and interest is covered about 2.4 times. That last figure is the one to watch. Coverage at that level is serviceable while the business is growing and unforgiving if it is not, and it constrains the very thing the growth assumption relies on, which is buying more businesses. The Triumph product support deal was "funded with debt financing", and the share count has risen about 2.6% a year over four years. Growth acquired with borrowed money and issued shares is not the same as growth generated by the assets already owned, and only the second kind justifies a premium multiple.

Concentration is the third pressure point, and it runs in an unexpected direction. Roughly a quarter of sales come from a small set of government customers. Those relationships look stable until they are competed. The 10-K is direct about the mechanics: government customers "may turn to commercial contractors, rather than traditional defense contractors, for certain work, or may utilize set asides such as small business, women-owned, or minority-owned contractors or determine to source work internally rather than use us", and the company notes it is "also impacted by bid protests from unsuccessful bidders on new" awards. A single re-competition can move a quarter of the revenue base in a way no airline customer ever could.

Underneath all of it, the commercial side is cyclical in the ordinary way. The filing warns that "A slowdown in the global economy, or a recession, would negatively impact the commercial aviation" market, and aftermarket parts demand follows flight hours with a short lag. Line up the ways of valuing this business and the split is clear. What the assets and the returns earned on them support, and what current earnings capitalized without growth support, both come out near half of where the shares change hands. Peer multiples land about at it. Only projections that carry recent growth forward for years reach it. The premium is entirely a bet on persistence, and persistence is the one thing the record does not yet evidence.

Valuation

Two clocks are running here and it is worth setting them side by side before anything else. Measured over the twelve months through February, the market is paying about 34 times what this business earned at the operating line. Fiscal 2026 then closed at the end of May and was materially better than that trailing window: operating income rose $92.6 million, or 50.0%, over the prior year. Both statements are true, and the difference between them is exactly one very strong quarter. A reader who takes the trailing multiple as the whole answer is looking at a photograph of a moving object.

Even on the improved base the demand embedded in the level is unusual. To earn a normal return from here, operating profit has to keep compounding at the fastest rate the business can self-fund, and it has to do so for something like eight years. Each percentage point of cost of capital shifts that required runway by roughly two years, so the figure should be treated as a description of the shape of the bet rather than a measurement. The shape is what matters: this is not a demand for one good year, it is a demand for most of a decade of them.

Two reference points say how demanding that is. Against the company's own record, the assumed pace runs well above what AAR has historically delivered. Against the peer group, the multiple sits at the very top of the distribution, well past the upper quartile. Against history more broadly, roughly a fifth of comparable fast-growing companies sustained that pace across that span. None of those is a prediction. Together they describe a level that requires the next several years to look nothing like the several before them.

The methods used to triangulate the business split along an informative line. Value the assets and the returns actually earned on them and the shares land near half of today's level. Capitalize current earnings with no growth assumed and the answer is similar. Apply the peer group's own multiples and the shares land close to where they trade, which is the honest reading of a business whose cohort is expensive too. Only the projection-based methods reach the price, and they do it by carrying the recent seventeen percent cash-flow growth rate forward across six years. That is the whole disagreement in one sentence: the static lenses price what the business is, the forward lenses price what it has lately been doing, and the shares are priced on the second.

Leverage is what turns that from an interesting debate into a real risk. Net borrowings of about $810 million work out to roughly 4.6 times operating profit, and interest is covered about 2.4 times over. Neither number is alarming for a company growing this fast; both become uncomfortable quickly if it stops. Meanwhile the share count has risen about 2.6% a year over four years, so per-share progress has had to overcome dilution rather than being helped by retirement. The buyer at this level is paying a premium multiple for a leveraged, acquisitive compounder in an industry that has cycles, and the premium leaves very little room for the cycle to arrive on schedule.

Catalysts

Fiscal 2026 closed on May 31 and the results landed on July 21, 2026. Fourth-quarter sales were $928 million, up 26% on the year, of which 13% was organic rather than acquired. That split is the number worth keeping. A company assembling itself through acquisitions can show almost any growth rate it likes; the organic half is the part that tells you the underlying business is expanding. Adjusted EBITDA for the quarter was $116 million, up 27%, and adjusted diluted earnings were $1.53 a share, up 32%.

For the full fiscal year, adjusted operating profit reached 10.2% of sales against 9.6% the year before, adjusted EBITDA was $401.1 million, or 12.1% of sales, and adjusted diluted earnings came to $5.05 a share against $3.91. Those are the company's own adjusted measures rather than reported figures, and the gap between the two is where acquisition and transaction costs live, so they flatter the picture by design. The direction, though, is not in dispute: profitability rose while the company was digesting four acquisitions, which is the harder version of that trick.

Guidance for fiscal 2027 is unusually specific for the first quarter and vaguer for the year. Management pointed to first-quarter sales growth, excluding the Legacy Commercial Programs unit being wound down, of 21% to 23%, with adjusted EBITDA of 12.25% to 12.75% of sales, and to low double-digit to low-teens sales growth for the full fiscal year. Two other items give that outlook something to stand on: a $305 million award to sustain the Navy and Marine Corps C-40A fleet, and the April acquisition of Aircraft Reconfig Technologies, which brings an FAA Organization Designation Authorization into the engineering business and lets AAR approve certain modifications itself rather than waiting on the regulator.

Peer Cohorts (Per Segment, With Filing Citations)

Parts Supply / Repair & Engineering (reported)

• HEI (HEICO CORPORATION)
• FY2025 10-K: …and business aircraft, aircraft engines and related components and equipment. Due in large part to our established industry presence, we enjoy strong customer relations, name recognition and repeat business. We sell our products to a broad customer base consisting of domestic and foreign commercial and cargo…
• FY2025 10-K: …activities. Research and development expenditures by the FSG were $43.7 million in fiscal 2025, $36.7 million in fiscal 2024 and $26.4 million in fiscal 2023. We believe that the FSG's research and development capabilities are a significant component of our historical success and an integral part of our growth…
• TDG (TransDigm Group Incorporated)
• FY2025 10-K: …that they will have a reduced incentive to certify another supplier because of the cost and time of the technical design and testing certification process. In addition, we believe that the availability, dependability and safety of our products are reasons for our customers to continue long-term supplier…
• FY2025 10-K: …therefore, could be adversely impacted by factors affecting our suppliers (such as the destruction of our suppliers' facilities or their distribution infrastructure, a work stoppage or strike by our suppliers' employees or the failure of our suppliers to provide materials of the requisite quality), or by increased…
• LOAR (Loar Holdings Inc.)
• FY2025 10-K: …for today's aircraft systems and structures. We strive to differentiate ourselves from our competitors by manufacturing products in an accurate, reliable and repeatable manner without sacrificing attention to detail, which is evident in the durability and precision of our products. We are able to keep capital…
• FY2025 10-K: …and continue to face and the risks and limitations that could harm our prospects, see "Cautionary Note Regarding Forward-Looking Statements," "Summary of Risk Factors" and "Risk Factors" included elsewhere in this Annual Report on Form 10-K. Competitive Strengths As a specialized supplier in the aerospace and defense…
• KRMN (Karman Holdings Inc.)
• FY2025 10-K: …critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business. Our ability to meet customers'…
• FY2025 10-K: …uncertainty regarding our suppliers' ongoing timely delivery of these components to us. Shortages in components for our products and delays in obtaining components for our products could cause customers to terminate their contracts with us, delay orders from us or cause us to delay accepting orders, negatively impact…
• SARO (StandardAero, Inc.)
• FY2025 10-K: …and licenses from OEMs often require that we purchase component parts from the OEMs or their designated distributors. For the year ended December 31, 2025, our four largest parts suppliers, which consisted of OEMs, accounted for a substantial majority of our total parts purchases. The loss of any of these key…
• FY2025 10-K: …components for our business from OEMs and material suppliers. Our authorizations from OEMs often require that we purchase component parts from the OEMs or their designated distributors. Our business, therefore, could be adversely impacted by factors affecting our OEMs and other suppliers (such as the destruction of…

Integrated Solutions (reported)

• SARO (StandardAero, Inc.)
• FY2025 10-K: …to and reviewed by the CODM on a consolidated basis to evaluate cost efficiency and company level performance. The Company's Engine Services segment provides a full suite of aftermarket services, including maintenance, repair and overhaul, on-wing and field service support, asset management, and engineering and…
• FY2025 10-K: …we implement, including policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information. In some cases, we must rely on the safeguards put in place by our customers, suppliers, subcontractors and other third parties to protect against…
• HEI (HEICO CORPORATION)
• FY2025 10-K: …a compound annual growth rate of approximately 16%. During the same period, we improved our net income from 2 Index $2.0 million to $690.4 million, representing a compound annual growth rate of approximately 18%. Disciplined Acquisition Strategy Acquisitions have been an important element of our growth strategy over…
• FY2025 10-K: …misappropriation or obsolescence from occurring by developing new techniques and improving existing methods and processes, which we will continue on an ongoing basis as dictated by the technological needs of our business. We believe that, based on our competitive pricing, reputation for high quality, short lead time…
• LOAR (Loar Holdings Inc.)
• FY2025 10-K: …and continue to face and the risks and limitations that could harm our prospects, see "Cautionary Note Regarding Forward-Looking Statements," "Summary of Risk Factors" and "Risk Factors" included elsewhere in this Annual Report on Form 10-K. Competitive Strengths As a specialized supplier in the aerospace and defense…
• FY2025 10-K: …any single customer, and no more than 7% of our 2025 net sales came from any single aircraft platform. We believe that our revenue diversification provides significant resiliency, and it positions us well to take advantage of new business opportunities. We believe that our efforts to serve our customers effectively…
• TDG (TransDigm Group Incorporated)
• FY2025 10-K: …the value we provide and the resources required to do so. Selective Acquisition Strategy. We maintain a selective acquisition strategy, concentrating on proprietary commercial aerospace component businesses with significant aftermarket content where we see a clear path to value creation through the application of our…
• FY2025 10-K: …solutions primarily serving the aerospace and defense end markets. Its products are highly engineered, proprietary components with significant aftermarket content and a strong presence across major aerospace and defense platforms. The operating results of Raptor Scientific are included within TransDigm's Airframe…
• KRMN (Karman Holdings Inc.)
• FY2025 10-K: …and space programs, utilizing our current integrated design-to-production capabilities and industry partnerships to efficiently develop and deliver innovative solutions. Aided by long-term secular growth trends across our key end-markets and by our ability to meet the increasingly complex design challenges required…
• FY2025 10-K: …ability to offer customers integrated system solutions. Other competitors for these integrated system solutions include our prime contractor customers' ability and decision to insource as part of their "make vs. buy" determination. Despite different positioning, we do compete with piece part and subsystem providers…
• ATRO (ASTRONICS CORPORATION)
• FY2025 10-K: …Combinations and Reorganizations ("ASC Topic 805"). ASC Topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred, identifiable assets acquired, liabilities assumed, non-controlling interests, and goodwill acquired in a business combination. See Note 21, Acquisitions, for…
• FY2025 10-K: …for reporting periods after the effective date of this ASU or retrospectively to all prior periods presented in the financial statements. The Company is currently reviewing the guidance and evaluating the impact on our Consolidated Financial Statements and related disclosures. We consider the applicability and impact…
• DCO (DUCOMMUN INCORPORATED)
• FY2025 10-K: …acquiring and integrating businesses that result in broader, more sophisticated product and service offerings while diversifying and expanding our customer base and markets. For example, in April 2023, we acquired 100% of the outstanding equity interests of BLR Aerospace L.L.C. ("BLR"), a privately-held leading…
• FY2025 10-K: …net revenues during 2025. Even if covered by insurance, any significant damage or destruction of our facilities due to storms, earthquakes, fires or other natural disasters could result in our inability to meet customer delivery schedules and may result in the loss of customers, the termination of previously awarded…
• TXT (Textron Inc.)
• FY2025 10-K: …training on Bell-owned aircraft and certified Full Flight Simulators and Flight Training Devices, as well as maintenance training on Bell's production representative maintenance training devices. Textron Systems Segment The businesses in our Textron Systems segment develop, manufacture and integrate a variety of…
• FY2025 10-K: …whether the Company is able to successfully retire risks surrounding such aspects of the contract. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls related to the Company's revenue recognition process, including controls…

Expeditionary Services (reported)

• KTOS (Kratos Defense & Security Solutions, Inc.)
• FY2025 10-K: …are scrutinized for compliance with regulatory standards by the Company's personnel, and are subject to audit by the Defense Contract Audit Agency ("DCAA"). From time to time, the Company may proceed with work based on customer direction prior to the completion and signing of formal contract documents. The Company…
• FY2025 10-K: …us-gaap:SecuredDebtMember 2022-02-18 0001069258 us-gaap:RevolvingCreditFacilityMember ktos:A2026CreditFacilityMember us-gaap:SubsequentEventMember 2026-02-20 2026-02-20 0001069258 us-gaap:RevolvingCreditFacilityMember ktos:A2026CreditFacilityMember us-gaap:SubsequentEventMember 2026-02-20 UNITED STATES SECURITIES AND…
• DRS (Leonardo DRS, Inc.)
• FY2025 10-K: …and/or cash flows from operating activities for a particular reporting period. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. The Company reviews the developments in contingencies that could affect the…
• FY2025 10-K: …an alternative EE/CA work plan, but the NPS rejected this offer and opted to perform the EE/CA itself. The NPS previously posted its intention to open a formal public comment period regarding the EE/CA at the end of 2019. To our knowledge, the EE/CA has not been released and a public comment period has yet to be…
• AVAV (AEROVIRONMENT, INC.)
• FY2025 10-K: …good or service. ​ Contract modifications are routine in the performance of the Company's contracts. In most instances, contract modifications are for additional goods and/or services that are distinct and, therefore, accounted for as new contracts. ​ Performance obligations are satisfied over time if the customer…
• FY2025 10-K: …administration of, and performance under, U.S. government contracts; ​ ● the Truth in Negotiations Act, which requires certification and disclosure of all factual cost and pricing data in connection with contract negotiations; ​ ● the False Claims Act and the False Statements Act, which impose penalties for payments…
• KRMN (Karman Holdings Inc.)
• FY2025 10-K: …growth company," as defined in Section 2(a)(19) of the Securities Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." In particular, while we are an "emerging growth company," among…
• FY2025 10-K: 10-K FY 0002040127 false http://fasb.org/srt/2025#ChiefExecutiveOfficerMember P1Y P1Y http://fasb.org/us-gaap/2025#GeneralAndAdministrativeExpenseMember http://fasb.org/us-gaap/2025#GeneralAndAdministrativeExpenseMember http://fasb.org/us-gaap/2025#GeneralAndAdministrativeExpenseMember…
• LOAR (Loar Holdings Inc.)
• FY2025 10-K: 10-K FY 0002000178 false 1 two year five year one year 1 http://fasb.org/srt/2025#ChiefExecutiveOfficerMember 0002000178 us-gaap:GeographicDistributionDomesticMember 2023-01-01 2023-12-31 0002000178 ck0002000178:TotalCommercialMember 2024-01-01 2024-12-31 0002000178 us-gaap:RetainedEarningsMember 2025-01-01 2025-12-31…
• FY2025 10-K: …as of June 30, 2023, by and among Loar Group Inc., Loar Holdings, LLC, the other guarantors party thereto from time to time, the lenders party thereto from time to time and First Eagle Alternative Credit, LLC, as administrative agent for the lenders and as collateral agent for the secured parties. S-1 10.1 April 2,…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.