On Monday, Morgan Stanley (NYSE:MS) began coverage on StandardAero Inc (NYSE: SARO), a key player in engine maintenance, assigning an Equalweight rating and setting a $33.00 price target. Their analysis suggests that while demand in the engine maintenance sector is robust, StandardAero's current valuation offers a balanced risk-reward proposition.
Morgan Stanley's analysts recognize StandardAero’s potential to surpass growth targets, particularly through expansion in its Component Repair business, which could significantly impact its valuation. In an optimistic scenario, StandardAero’s valuation could rise to $51.00. However, a bearish scenario could see its value drop to $18.00 if operational challenges or underperformance affect results.
The firm highlights that consistent quarterly earnings in line with or above market expectations may shift the risk-reward balance favorably over time, although StandardAero will need a reliable financial track record as a publicly listed entity to achieve this shift.
Other analysts have also weighed in on StandardAero’s market potential. Bernstein SocGen Group recently assigned an Outperform rating, setting a $39.00 target and projecting 2024 revenue around $5.2 billion. JPMorgan (NYSE:JPM) rated the stock Overweight with a $36.00 target, anticipating a double-digit compound annual growth rate from 2024 to 2027.
Additional assessments include RBC Capital Markets' Outperform rating with a $37.00 target, citing strength in the Maintenance, Repair, and Overhaul (MRO) sector, and Jefferies' Buy rating with a $38.00 target, forecasting a 16% compound annual EBITDA growth through 2027. Meanwhile, UBS gave a Neutral rating due to valuation concerns, setting a $34.00 target despite recognizing growth potential.
InvestingPro Insights provide further context to Morgan Stanley's analysis, noting StandardAero's trailing twelve-month revenue of $4.84 billion as of Q2 2024, with a 16.41% revenue growth in Q2 alone. However, financial challenges, including a twelve-month EPS of -$0.05 and a low gross profit margin of 13.96%, highlight reasons for Morgan Stanley's cautious Equalweight rating. High valuation metrics, including a P/E ratio of 1012.59 and a Price/Book ratio of 8.73, suggest the stock’s optimistic pricing, aligning with Morgan Stanley’s balanced risk-reward stance at current levels.
