Investors can't quite make up their minds about AerCap Holdings' (NYSE:AER) deal to acquire the aircraft leasing business of General Electric (NYSE:GE). The stock was up big on Monday on rumors of a potential deal, but sold off on Wednesday following the announcement.
On Thursday, Wall Street analysts added their two cents about the complicated transaction, and AerCap finished the day up again, by 8.3%.
AerCap specializes in buying airplanes from manufacturers and leasing them to airlines. The industry took a hit last year as the pandemic wiped out demand for travel, and with it demand for aircraft, but AerCap shares have rebounded nicely in recent months as air travel slowly begins to normalize.
AerCap, already among the biggest leasing firms out there, on Wednesday announced plans to nearly double in size by acquiring the GECAS unit of General Electric. The deal is valued at $31 billion, including $24 billion in cash, and would leave GE with a 46% stake in the combined company.
It's a big bite to swallow, and although it would make AerCap a dominant force in aircraft leasing, investors appear to have been temporarily spooked by the size of the outlay.
Wall Street chimed in on Thursday, and analysts were largely positive on the deal. Stephens upgraded AerCap to overweight from equal weight, and both Barclays and Deutsche Bank upped their price targets for the shares.
AerCap also got some positive commentary from investor David Einhorn, who said during Greenlight Capital's earnings call that with airline balance sheets bruised by the pandemic, lessors are likely to play an even more important role in the years to come.
Prior to the GE deal, I called AerCap the single best way to invest in an aviation recovery. The deal adds some integration risk and muddies the story for a few quarters, but there is still a lot to like about this company.
AerCap shares are still down 5% from where they were at the beginning of 2020, before the pandemic. A full recovery might take some time, especially with the GE assets to be sorted, but AerCap is positioning itself to be the first call an airline makes when it needs new aircraft, and a formidable customer with size and scale when negotiating with Airbus (OTC: EADSY) and Boeing (NYSE: BA) for future jet purchases.
In time, I believe AerCap is set up well to be a winner.