AAR (AIR) Earnings: A Strategic Buy Opportunity Amid a Strong Aerospace and Defense Sector

AAR Corporation (AIR) has emerged as a compelling investment opportunity in the aerospace and defense sector, driven by robust earnings growth, a resilient business model, and favorable industry tailwinds. With fiscal year 2025 results underscoring its operational strength and forward guidance reflecting confidence in future performance, AAR's valuation metrics and sector positioning warrant closer scrutiny for investors seeking exposure to a high-growth industrial play.

Earnings Momentum: A Catalyst for Growth

AAR's fiscal year 2025 results demonstrated exceptional momentum, with consolidated sales reaching $2.8 billion- a 20% year-over-year increase. This growth was fueled by strong performance across its segments, particularly the Parts Supply division, which accounts for 43% of revenue and delivered an average annual growth rate of 15.2% over the past two years. For the fourth quarter alone, adjusted diluted EPS surged 32% to $1.16, outpacing GAAP EPS of $0.95.

The company's strategic acquisitions, such as the $146 million purchase of American Distributors Holding Co., have further bolstered its parts distribution capabilities. Looking ahead, AAR's management highlighted "strong organic sales growth in Q1 FY26" and "significant margin expansion" in the Parts Supply segment, suggesting that earnings momentum is unlikely to wane. Analysts project adjusted EPS of $1.08 for the current quarter, with revenue expected to climb to $740 million.

Valuation: A High-Multiple Justified by Growth?

AAR's valuation metrics appear elevated at first glance. Its trailing P/E ratio of 97.2 exceeds the historical average of 74.15, while its EV/EBITDA stands at 23.46. However, these multiples must be contextualized against the company's growth trajectory and sector dynamics.

The aerospace and defense industry trades at an average P/E of 43.5x as of early 2026, significantly higher than AAR's peers such as Lockheed Martin (LMT), which has a P/E of 26.36. AAR's PEG ratio of 2.3x suggests the stock is overvalued relative to its expected earnings growth, but this metric assumes growth will remain consistent. Given AAR's 20% revenue growth in FY2025 and its 7–10% sales growth guidance for FY2026, the company's premium valuation may be justified if it continues to outperform expectations.

Sector Positioning: Riding the Wave of Defense Spending

The aerospace and defense sector is poised for long-term growth, driven by escalating global defense budgets and technological innovation. In 2024, U.S. defense spending hit a record $995 billion, with a $73.9 billion trade surplus. Geopolitical tensions in Ukraine and the Middle East have further accelerated demand for advanced capabilities, with defense contractors increasingly adopting AI and digital engineering to enhance predictive maintenance and supply chain efficiency.

While the broader aerospace and defense industry recorded a negative annual growth rate of -1.17% in 2025, long-term projections remain bullish. Global defense spending is expected to reach $1.47 trillion by 2032, growing at a compound annual rate of 8.2%. AAR's focus on high-margin parts distribution and its ability to capitalize on M&A synergies position it to benefit from this secular trend.

Conclusion: A Strategic Buy Amid Sector Resilience

AAR's combination of strong earnings growth, a high-quality business model, and a favorable industry outlook makes it an attractive candidate for investors willing to tolerate its elevated valuation. While its P/E and PEG ratios suggest a premium, the company's ability to sustain double-digit revenue growth and expand margins-particularly in its Parts Supply segment-could justify these multiples. In a sector characterized by geopolitical tailwinds and technological disruption, AAR's strategic positioning and execution capabilities offer a compelling case for a long-term buy.