AAR CORP (AIR): what the price requires

At today's price, AAR CORP (AIR) is priced for today's economics sustained for ~8.6 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/AIR

Headline

FieldValue
TickerAIR
CompanyAAR CORP
Current price$131.79/sh
CompositionParts Supply 40% / Repair & Engineering 32% / Integrated Solutions 25% / Expeditionary Services 4%

What The Price Requires (Inversion)

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

FieldValue
Inversion basiswhole-company
Operating margin needed3.3%
Operating margin today5.8%
Margin compression implied-2.5pp
Must persist for8.6y
Multiple paid35x operating income

The operating-margin requirement is derived from the framework's value band at year 10, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 10% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~1.9 years.

How unusual the bet is: high

ReferenceValue
vs own history+2.48σ
cohort percentile (of 225 peers)76
sustained it ~8.6 years at this level18%
implied end-window share0%

Valuation X-Ray

The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.

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.

FamilyMedian price/FVModelsReads
Asset2.65x4expensive
Earnings1.80x2expensive
Relative1.01x4expensive
Growth1.00x3justifies

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

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=13)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$55.342.38xyesFCF base $0.1B, growth 17% (input: historical growth), terminal g 4.0%, WACC 8.0%, 6yr projection
DCF Exit MultipleGrowth$149.820.88xyesExit EV/EBITDA: 440.5x / 442.5x / 444.5x (bear / base = today's held flat / bull), 6yr
Relative ValuationRelative$111.321.18xyesP/E 22x (static sector reference · 2026-04), scenarios: 17.9x / 22.0x / 26.1x (bear / base = reference held flat / bull), EV/EBITDA 30.8x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$46.802.82xyesBV/sh $41.61, ROE (TTM) 10.4%, ke 9.3%
Two-Stage Excess ReturnAsset$49.542.66xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$132.021.00xyesRev $3.1B, growth 17% (input: historical growth; tapered), Terminal P/S: 1.4x / 1.7x / 2.0x (bear / base = today's held flat / bull, cap 12x)
Peter Lynch Fair ValueRelative$54.362.42xyesEPS $4.53, growth 2% (input: historical EPS growth), PEG=15.22 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings——no—
Residual IncomeAsset$50.052.63xyesBV $41.61 + 5yr PV of (ROE (TTM) 10.4% − Kₑ 9.3%) × BV; BV grows 6.8%/yr
Graham NumberAsset$65.122.02xyes√(22.5 × EPS $4.53 × BVPS $41.61) — Graham's conservative floor
EV/EBITDA RelativeRelative$0.0113179.00xyesEBITDA $0.01B × sector EV/EBITDA 14.0x (excluded from median)
FCF YieldEarnings$0.0113179.00xyesFCF $60.2M / Kₑ 9.3% — zero-growth perpetuity (excluded from median)
SBC-Adj FCF YieldEarnings$0.0113179.00xyesSBC-adj FCF $0.04B (FCF $0.06B − SBC $0.02B) capitalized at Kₑ (excluded from median)
Ben Graham FormulaEarnings$146.170.90xyesEPS $4.53 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset——no—
P/Sales SectorRelative$158.710.83xyesRevenue $3.13B × sector P/S 2.0x
PEG Fair ValueRelative$169.870.78xyesEPS $4.53 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings YieldEarnings$48.972.69xyesEPS $4.53 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$809.8m
Net debt / NOPAT (after-tax)6.26x
Net debt / operating income (pre-tax)4.57x
Interest coverage2.4x
Share count CAGR (dilution)2.1%
Burning cashno

Bullet Takeaways

The surprise is the parts distribution business: the Parts Supply segment grew 45 percent in the third fiscal quarter, with 36 percent organic growth in new-parts distribution and 55 percent organic growth in sales to government customers. This is not the slow-moving MRO shop the name suggests.

At $135.25 the stock trades near 35 times operating income, and the price embeds operating growth held at the self-funding ceiling for roughly nine years, a pace well above what the company has historically delivered.

The growth is partly bought. AAR has stacked acquisitions, Triumph Product Support for $725 million, then ADI and HAECO Americas, lifting net debt to roughly $810 million against a 5.7 percent operating margin and interest coverage near 2.4 times.

Bull Case

The counterintuitive finding is how fast the least glamorous part of AAR is growing. The market files AAR under aviation maintenance, a steady but unexciting aftermarket services business, yet the standout in fiscal 2026 has been parts distribution. Third-quarter Parts Supply revenue grew 45 percent, led by 36 percent organic growth in the new-parts distribution activity, and within that, sales to government customers grew 55 percent organically. Consolidated third-quarter sales rose 25 percent to $845.1 million, including 14 percent organic growth, with gains across parts, repair and the software platform. The filing describes a Parts Supply segment built on "opportunities in both the commercial and government markets" (FY2025 10-K, accession 0001410578-25-001475), and the distribution model, supplying new parts under manufacturer authorizations rather than just repairing used ones, is a higher-velocity, asset-lighter business than the MRO image implies.

The demand backdrop is structural. Airlines are flying older fleets harder as new-aircraft deliveries stay constrained, which lifts demand for spare parts and component repair, and the defense aftermarket is expanding. AAR sits across four segments, Parts Supply, Repair and Engineering, Integrated Solutions and Expeditionary Services, so it touches the aftermarket from several angles at once, and the chief executive evaluates the business on operating income by segment (same filing), a sign of disciplined, returns-focused management.

Management has been building the distribution engine through acquisition, and the deals are landing in the fastest-growing area. AAR completed the Triumph Product Support acquisition for $725 million and then closed ADI in Parts Supply and HAECO Americas in Repair and Engineering, with ADI explicitly extending the new-parts distribution activity that is compounding fastest. If the distribution platform keeps taking share in both commercial and government channels, the consolidated growth rate the company has shown recently is not a fluke of the cycle but the early innings of a larger parts business, which is exactly the forward profile the static valuation frames struggle to price.

Bear Case

The aviation aftermarket is a cyclical business, and AAR is being priced as if the current upswing is permanent. Demand for spare parts and component repair tracks how hard airlines fly their fleets, which in turn tracks air travel and airline profitability, and both are near strong points in the cycle. The recent 25 percent revenue growth and the 45 percent Parts Supply surge are coming when fleets are old, new deliveries are scarce, and aftermarket demand is unusually tight. Those conditions ease when new aircraft finally arrive in volume and when a travel downturn slows flying. At $135.25 (June 27, 2026) the stock trades near 35 times operating income, and inverting that multiple implies operating growth held at the self-funding ceiling for about nine years, a pace the inversion notes "runs well above what it has actually delivered." Only about one in six comparable fast-growers sustained that for that long. Buying a cyclical at a peak multiple on peak-cycle growth is the classic way to overpay.

The growth is also leveraged and partly acquired, which sharpens the cyclical risk. AAR funded its distribution build with debt, taking net debt to roughly $810 million against a 5.7 percent operating margin, with interest coverage near 2.4 times. The filing warns that the debt is "placing us at a competitive disadvantage compared to our competitors that have less debt" and "limiting our ability to borrow additional funds" (FY2025 10-K, accession 0001410578-25-001475). A leveraged company priced for ceiling growth has little cushion if a downturn compresses margins while interest costs stay fixed.

The customer base adds a quieter risk. AAR sells to airlines and to government, and the filing notes that if "customers with whom we do business become insolvent or experience substantial financial difficulties, we may be unable to timely collect amounts owed" (same filing). Airline credit is itself cyclical, so a travel downturn can hit AAR twice, through lower parts demand and through weaker customer receivables. The acquisition-fueled growth also makes the organic trend harder to read, and integration of Triumph, ADI and HAECO has to deliver the synergies the price assumes. A peak-cycle multiple on a leveraged, acquisitive, cyclical aftermarket name is a demanding combination.

Valuation

The price decomposes as a demanding bet on continued execution. The relative-multiple and forward-growth frames justify the $135.25 price, while the asset-based and earnings-power methods read it as expensive, and the blended central value across methods sits near $55. Inverting the current price, the market is paying about 35 times company-wide operating income, which implies operating growth held at the self-funding ceiling for roughly nine years.

What makes this aggressive is that the assumed pace runs well above what AAR has historically delivered, not merely above a normal base rate. The recent results are strong, with third-quarter sales up 25 percent and Parts Supply up 45 percent, but a meaningful part of that growth came from acquisitions, Triumph Product Support, ADI and HAECO Americas, so the organic, repeatable rate is lower than the headline. Historically only about 17 percent of comparable fast-growers sustained ceiling-level growth across a window this long. Layer on the leverage, with net debt near $810 million and interest coverage around 2.4 times, and the equity is sensitive to both the growth holding and the cycle staying favorable. The investment case rests on the new-parts distribution platform proving to be a durable, share-gaining business rather than a cyclical surge: if distribution keeps compounding organically and the acquisitions integrate cleanly, the forward earnings justify the premium; if the aftermarket cools or integration disappoints, a peak multiple on peak-cycle earnings has a long way to fall toward where the asset and earnings methods sit.

Catalysts

Parts distribution growth is the central catalyst. Third-quarter fiscal 2026 Parts Supply revenue grew 45 percent, with 36 percent organic growth in new-parts distribution and 55 percent organic growth in government sales. The key items to watch each quarter are the organic distribution growth rate and whether the government channel keeps expanding, since those are what separate a durable platform from a cyclical spike.

Acquisition integration is the second catalyst. AAR closed ADI in Parts Supply and HAECO Americas in Repair and Engineering, building on the earlier $725 million Triumph Product Support deal. The realized synergies, the margin contribution from these businesses, and the pace of deleveraging from the roughly $810 million net-debt position are the markers that show whether the acquired growth is accretive net of the debt taken on to fund it.

The aviation cycle is the swing factor. AAR's parts and repair demand depends on how hard airlines fly aging fleets and on defense aftermarket spending, so air-travel trends, new-aircraft delivery rates, and airline financial health are the external catalysts to monitor. A continued tight aftermarket supports the growth the price assumes; a travel slowdown or a wave of new deliveries would pressure it. Quarterly results remain the main proof point on whether organic distribution growth and margins are holding.

Peer Cohorts (Per Segment, With Filing Citations)

Parts Supply / Repair & Engineering (reported)

Integrated Solutions (reported)

Expeditionary Services (reported)

Methodology Note

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.

View the full interactive AIR report on boothcheck