BofA Downgraded AerCap On Heightened Risk Related To Residual Values

Shares of AerCap Holdings N.V. AER have significantly underperformed the S&P 500 since March 4, shedding 37.2% versus the 3.2% decline in the index.

The underperformance has been driven by investor concerns over the future of air travel and the commercial transport industry after the pandemic, according to BofA Securities.

The AerCap Holdings Analyst

Ronald Epstein downgraded AerCap from Buy to Neutral, while slashing the price target from $77 to $35.

The AerCap Holdings Thesis

While the earlier Buy thesis was based on AerCap’s opportunistic and smart aircraft trading strategy, this has resulted in a mid-age fleet for the company, Epstein said in the downgrade note.

He explained that this would not have been an issue during normal times, but in the current environment an older fleet may come under pressure.

“We see heightened risk to fleet equipment residual values, particularly for mid-life aircraft,” Epstein wrote in a note. He added that the company is likely to underperform its peers with younger fleets and lower debt.

AerCap has withdrawn its earnings outlook for 2020, citing the impact of COVID-19 on the aviation industry. In this environment, the company has offered rent deferrals of two to three months to many of its long-term customers, with repayment expected up to six months after the deferral, the analyst mentioned.