30% - 70% Upside

Air Lease stock can outperform thanks to attractive valuation and secular tailwinds in the aircraft leasing market

Last week's record Thanksgiving travel in the United States is indicative of strength in global commercial air travel and so Air Lease ("AL") is currently a highly-compelling prospective investment worth evaluating. The company trades at a market cap of $5.7bn and EV of $25.4bn with a stock price of $51.37. On a multiples basis, it is currently valued at 9.5x NTM EBITDA, 9.4x NTM P/E and 0.74x Price to Tangible Book Value ("P / TBV"). AL also pays a modest dividend that currently yields 1.8%.

Air Lease self-identifies as an order-book aircraft lessor. Its strategy is to acquire nextgen aircraft directly from Airbus and Boeing and lease these aircraft to a globally diversified portfolio of commercial airlines. Next-generation aircraft use new technologies to make air travel more efficient, safe, and environmentally friendly and AL has relationships with over 200 airlines in over 70 countries. Since 2020, AL has navigated a number of challenges: a) re-negotiating to softer lease rates for about 25% of its portfolio at the peak of the global pandemic; b) a Russian seizure of 21 aircraft that wiped out more than 10% of its common equity (along with the corresponding earnings stream); and c) interest rates increased and pressured cash flows due to significant debt levels necessary to finance its aircraft purchases.

As Air Lease has navigated these challenges, its P / TBV, Return on Equity ("ROE") and Return on Assets ("ROA") all deteriorated relative to pre-COVID levels. However, structural trends in the passenger airline market should benefit AL and drive a re-pricing of the shares. We think a re-pricing of 30% to 70% over the next two to three years is possible due to the following factors: