Wolfe Research Reiterates Outperform Rating on FTAI Aviation (FTAI), PT $190

Wolfe Research analyst Myles Walton reiterated an Outperform rating and $190.00 price target on FTAI Aviation (NASDAQ: FTAI)

The analyst comments "FTAI shares traded near record levels on Friday, but fell 12% on Mon/Tues on reported short selling and ultimately closed down 24% today after noted short seller, Muddy Waters, released a critical short report on the company. We'll be hosting a "FTAI Office Hour" in the morning (Thur Jan 16) at 8am ET (register here) to answer investor questions. Our initial takeaways and thoughts on the report are below. The first thing we noticed is that the report does not appear to consider the impact of the recently announced Strategic Capital Initiative (our initial thoughts) which to us is a key driver to future positive earnings revisions and also goes to addressing two of our prior concerns (capital intensity of biz and penetration - this was key driver to our upgrade). [It also doesn't prescribe any future benefit from FTAI's PMA potential.] Second, the majority of the report should come of no surprise to investors that we interact with as we've frequently written re: FTAI's unique accounting (asset sale gains within AP, likely margin benefit from unsustainable rise in engine values, CF is not straight forward like an industrial co) and overall business complexity (marrying of a leasing biz with MRO drives complexity and allows for some level of cost moving). At the same time, the report makes some assumptions we wouldn't agree with based on our knowledge of FTAI and conversations with mgmt. While the report brings up some areas worth looking into (a potential smaller 4Q23 transaction that we haven't diligenced), the real crux is if FTAI is simply cycling engine asset sales within Aerospace Products. We've asked mgmt specifically, as recently as last week, if the mix of sales on the CFM56 were predominately modules vs. engines and they confirmed modules remain the predominant contributor. Moreover, we do see whole engine sales taking place, but a key item we think being missed is that the engines have to be "repaired" and so these are not engines that are simply transferred from leasing and are then sold. We have long discussed the 3 primary contributors to AP profit are 1) repair value (15%+ EBITDA margins is realistic), 2) a distribution or JIT value (~15% EBITDA) and 3) an asset value arbitrage contribution (which is a combination of low priced/depreciated assets) that has less durability through cycles. The latter piece of the profit stream we have expected to moderate but likely to be backfilled by a future PMA benefit. Based on today's close, FTAI shares trade at a combined EV/EBITDA of ~14x '25 est ($1.09B, in-line with cons) and 11.5x '26 est ($1.35B, +3% vs. cons). While it could be a rocky period NT we see this as a very attractive entry point as shares should benefit in the coming weeks from several items (SPV capital partner and possible asset acquisition announcements and strong 4Q results which will likely be accompanied by increased 2026 EBITDA targets---currently $1.25B ex corp and potential PMA approvals)."

For an analyst ratings summary and ratings history on FTAI Aviation click here. For more ratings news on FTAI Aviation click here.

Shares of FTAI Aviation closed at $116.08 yesterday.

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