RBC Capital Markets analyst Ken Herbert reiterated an Outperform rating for AAR Corp (NYSE: AIR) with a price target of $145 per share. The firm cited robust core business growth but warned that margins could face pressure from Legacy Commercial Programs (LCP) headwinds ahead of the first-quarter fiscal 2027 results.

Herbert noted that AAR ended fiscal 2026 with strong organic results, including 13% organic adjusted sales growth in the fourth quarter. This performance was driven by 19% organic growth in new parts distribution, record growth in component MRO activity, higher volumes at airframe MRO facilities, and increased recurring revenue at Trax.

Q1FY27 guidance and LCP impact

The analyst stated that the aftermarket fundamentals support AAR’s first-quarter targets, with potential upside. However, broader aviation maintenance uncertainty may limit sentiment improvement despite expected bullish management commentary. AAR’s guidance for Q1FY27 suggests total sales growth of 21%-23% and adjusted EBITDA margins of 12.25%-12.75%, excluding the LCP business.

Herbert projected revenue growth of 22.5% and around 7% organic growth for the core business. He highlighted a $15 million year-on-year headwind from LCP, leading him to lower his adjusted EBITDA margin estimate from 12.5% to 12% to reflect this impact.

What the Numbers Show

The divergence between the guided EBITDA margin range (12.25%-12.75%) and Herbert’s revised estimate (12%) underscores the material drag from legacy programs. While core segments like parts distribution and component MRO show double-digit organic growth, the $15 million LCP headwind effectively offsets a portion of this operational strength, compressing overall profitability relative to core performance.

AAR shares declined 0.88% to $115.02 at the time of publication on Monday.

An investment of $1,000 in AAR Corp (NYSE: AIR) five years ago would be worth $3,674.56 today. The aerospace services provider has generated an average annual return of 29.94% over this period.

Market performance and valuation

AAR Corp has outperformed the broader market by 17.84% on an annualized basis during the last five years. As of the time of writing, the company holds a market capitalization of $4.77 billion. The current share price stands at $119.46, which serves as the basis for calculating the cumulative growth of the initial investment.

Compounding effect on capital

The data illustrates the significant impact of compounded returns on cash growth over a multi-year horizon. By maintaining a high average annual return rate, the initial principal multiplied more than threefold within a five-year window. This performance highlights the value of long-term holding periods for assets exhibiting consistent upward trajectories.