Why Is AAR Corp. (AIR) An Undervalued Aerospace Stock to Buy According to Hedge Funds?

AAR Corp. (AIR) has been gaining attention from hedge funds as an undervalued aerospace stock with significant growth potential. The company's strong market position, strategic acquisitions, and diversified business model have contributed to its appeal among investors. This article explores the reasons behind hedge funds' bullish stance on AAR Corp. and why the stock may be an attractive buy.



AAR Corp.'s market position in the aerospace industry is a key factor driving hedge funds' interest in the stock. The company's Parts Supply segment, which accounts for 60% of revenue, is the largest and most profitable, focusing on the sale and leasing of used serviceable aircraft parts and aftermarket distribution of new OEM-supplied replacement parts. The Repair & Engineering segment provides airframe maintenance, component repair, and landing gear overhaul services, while the Integrated Solutions segment offers fleet management, supply chain logistics programs, and integrated software solutions. The Expeditionary Services segment focuses on the design, manufacture, and repair of transportation pallets, containers, and shelters. AIR's diversified business model and expertise in MRO services position it well to capitalize on favorable industry trends and growth opportunities.



AAR Corp.'s recent acquisitions and strategic initiatives have significantly contributed to hedge funds' positive assessment of its undervalued status. The company's purchase of Triumph Group's Product Support Business for $725 million in March 2024 expanded its MRO capabilities, increasing its market share and diversifying its revenue streams. This acquisition, along with the groundbreaking of additional hangars in Miami and Oklahoma City, has positioned AAR to capitalize on the growing demand for aircraft maintenance services. Hedge funds likely view these strategic moves as indicators of AAR's commitment to growth and its potential to generate higher returns, further supporting their bullish stance on the stock.

Despite these positive developments, AAR's stock price has lagged, presenting an opportunity for investors to buy in at a discounted valuation. The company's valuation multiples below industry averages suggest potential upside, and its strong market position, strategic acquisitions, and diversified business model provide a solid foundation for growth. While concerns over negative free cash flow and increasing debt levels exist, AAR's valuation multiples below industry averages indicate undervaluation.

In conclusion, AAR Corp. (AIR) is an undervalued aerospace stock according to hedge funds, driven by its strong market position, strategic acquisitions, and diversified business model. The company's recent acquisitions and growth prospects have further bolstered the bullish stance of hedge funds, presenting an attractive opportunity for investors to buy in at a discounted valuation. As the aerospace industry continues to grow and evolve, AAR's expertise in MRO services and commitment to strategic growth initiatives position it well to capitalize on emerging opportunities and generate higher returns for investors.