Despite Management's Asset Commitment, AerSale Faces Margin Risks: Analyst Adjusts Forecasts Reflecting Market Dynamics

RBC Capital Markets analyst Ken Herbert downgraded AerSale Corp ASLE to Sector Perform from Outperform at a lowered price target of $15 from $20.

The analyst is bearish following worse-than-expected Q2 FY23 financial results and 2023 revenue guidance below estimates.

Revenue of $69.3 million missed the consensus of $86.98 million, and adjusted EPS loss of $(0.03) missed the consensus of $0.11.

AerSale lowered revenue outlook to $400 million -$440 million from $460 million - $490 million earlier (vs. consensus of $468.11 million) and adjusted EBITDA to $40 million - $55 million from $70 million - $80 million prior in 2023. 

Herbert notes delays in asset sales and a softer cargo market have pushed around six 757 transactions into 2024.

The analyst lowered 2023 and 2024 adjusted EBITDA estimates to $44.9 million (from $71.7 million) and $60.2 million (from $83.3 million), respectively.

Also, Herbert reduced 2023 and 2024 adjusted EPS estimates to $0.67 (from $1.12) and $0.94 (from $1.34), respectively.

Nevertheless, the analyst is confident that management's $200 million commitment to assets will drive revenues but sees incremental risk to margins and FCF from weakening cargo markets, working capital expenditure, and timing of asset sales.

Price Action: ASLE shares are trading lower by 25.5% at $10.86 on the last check Wednesday.