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Hawk’s Nest

Unusual Call Buying in AAR Corp

by | Jul 21, 2021

AAR Corp (AIR) traded 14,000 calls on 7/21 which compares to an average volume of 34, as 2000 February 2022 $45/$55 call spreads opened and 3000 of the December $45/$55 call spreads were bought. AIR shares have pulled back since March but bounced this week off a key volume node of support and also quickly bounced back above its 200-day moving average after a false breakdown. IR is a diversified provider of products and services to the worldwide aviation and government and defense markets. It says long-term commercial aftermarket growth trends are favorable although there is uncertainty in certain fleet types as commercial operators re-evaluate their structure. AAR operations are affected by the amount of commercial aircraft flying and flight hours. Aviation Services segment provides aftermarket support and services for the commercial aviation and government and defense markets and accounted for approximately 95% of sales. It sales are split 62% commercial and 38% government. The $1.28B company is trading 8.6X EBITDA and 16.1X Earnings with a strong balance sheet with revenues seen rising 13% this year (FY22) and EBITDA up 43%. The action today came with a positive pre-market note out of Canaccord and in March Benchmark raised its target to $52 on increased air travel spend leading to additional aftermarket activity.

AIR looks quite cheap for the patient investor with these spreads targeting 50% upside, also a small enough play that could be an intriguing acquisition target.