Air Transport's Decision To Control Capex Amid Uncertain Macro Backdrop Looks Prudent: Analyst

Susquehanna analyst Christopher N. Stathoulopoulos reiterated a Positive rating on Air Transport Services Group, Inc ATSG, raising the price target to $26 from $18.

ATSG recently reported Q2 results, where earnings beat estimates.

The analyst views ATSG's decision to rein in capex (i.e., removing two A321 feedstock purchases for 2024 conversion and fewer engine overhauls for the B767-200Fs) and tighten the period between feedstock acquisition and conversion as strategically sound.

The analyst adds that the decision demonstrates management's willingness to address the risks of managing a full order book (i.e., commitment for >10 aircraft through 2024) against an uncertain macro backdrop. 

Looking to 2024, the analyst is keeping a close eye on labor, raising the question as to whether contracted ACMI yields are strong enough to offset what's been a meaningful increase in pilot and crew wages across the airline industry.

Net of 2Q's beat, the analyst's FY23 adjusted EBITDA estimate moves slightly higher to $613 million, with FY23 adjusted EPS estimate now $1.82 (vs. $1.67 prior and vs. revised guidance of $1.65 to $1.80).

For FY24, the adjusted EBITDA estimate is down a touch on a slightly weaker margin (now ~$666 million, or up ~9% Y/Y vs. consensus and guidance of +10%). The FY24 adjusted EPS estimate moves to $2.05 (vs. $1.85 prior) on a slightly weaker PT margin with some offset vs. a lower share count. 

Price Action: ATSG shares are trading lower by 1.19% to $22.43 on the last check Wednesday.