Aerospace and defense company Air Industries Group (AIRI) designs, manufactures, and sells structural parts and assemblies for prime defense contractors in the aerospace industry in the United States. The Bay Shore, N. Y.-based company operates through two segments—Complex Machining and Turbine Engine Components.

The stock has had lackluster momentum for nearly half a decade now, with its price descending 70.5% over the past five years. AIRI has slumped 7.3% in price year-to-date. However, it has gained 10.7% over the past five days.

Aerospace suppliers, including AIRI, experienced a challenging 2020. Manufacturers of  commercial aerospace portfolios suffered a 30%-50% decline  in sales globally last year, while manufacturers with a larger share of the commercial aerospace market  saw a 60%-70% decline . However, suppliers with large defense portfolios were somewhat hedged by defense contracts.

The industry is now regaining its growth trajectory with rebounding demand. Recently, AIRI announced that its Sterling Engineering subsidiary had been awarded a new Long-Term Agreement (LTA) with a minimum value of more than $5.2 million to deliver “Chaff Pods” for the new CH-53K heavy-lift helicopter. “This award to our Sterling Engineering subsidiary in Connecticut evidences our success in having our customers view Air Industries as one company with many capabilities,’’ said Lou Melluzzo, Air Industries CEO.

AIRI also recently announced that it had received a follow-on LTA to produce landing gear components for the F-35 Joint Strike Fighter Aircraft, with estimated purchases of between $12 – $18 million over the three years running 2022 – 2024. The company is thus expected to generate substantial cash inflows over an extended period.

Here’s what could shape AIRI’s performance in the near term:

Mixed Valuations

In terms of non-GAAP forward P/E, AIRI is currently trading at 28.50x, which is 41.5% higher than the 20.15x industry average. Also, its 166.58 trailing-12-months EV/EBIT ratio is 747.4% higher than the 19.66 industry average.

However, AIRI’s forward EV/Sales is 44.6% lower than the 1.96x industry average, and its forward Price/Sales is 62.6% lower than the 1.59x industry average.

Solid Financials

AIRI’s net sales increased 81.9% year-over-year to $15.45 million in its fiscal second quarter, ended June 30. Its gross profit stood at $2.60 million, up 323.9% from the same period last year. And its income from operations increased substantially from its negative year-ago value to $440,000, while its net income grew 115.1% from the year-ago loss to $239,000. The company’s EPS increased 120% year-over-year to $0.01.

Bleak Profitability

AIRI’s 14.16% gross profit margin is 51.7% lower than the 29.29% industry average. Also, its 2.98% net income margin is 48.4% lower than the industry average. Moreover, its EBIT margin is 92.3% lower than the 9.10% industry average.

Furthermore, AIRI’s 0.56% and 3.04% respective ROTC and ROA with the 6.37% and 4.76% industry averages.

POWR Ratings Reflect Uncertainty

AIRI has an overall rating of C, translating to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

AIRI has a C grade for Value, in sync with its mixed valuations. The stock has a D grade for Quality, which is consistent with its lower than industry profit margins.

Of the 65 stocks in the Air/Defense Services industry, AIRI is ranked #45.

Beyond what I have stated above, one can view AIRI’s grades for Momentum, Growth, Sentiment, and Stability here.

View the top-rated stocks in the Air/Defense Services industry here.

Bottom Line

The aerospace industry incurred enormous financial losses in 2020 due to a contraction in demand. However, the defense sector was relatively stable owing to unprecedented government support. Despite significant losses last year, AIRI managed to deliver robust second-quarter earnings. However, from a profitability aspect, the company still appears to be weak. So, we think it could be wise to wait for its financials to improve before betting on the stock.

How Does Air Industries Group (AIRI) Stack Up Against its Peers?

While AIRI has an overall POWR Rating of C, one might want to consider looking at its industry peer, Moog Inc. (MOG.A), which has an A (Strong Buy) rating.

AIRI shares fell $0.03 (-2.75%) in premarket trading Tuesday. Year-to-date, AIRI has declined -12.20%, versus a 21.28% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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