AAR Corp.: Margin Expansion And Aerospace & Defense MRO Growth Offer Attractive Upside

AAR Corporation's (AIR) stock declined after Q3 2025 earnings missed estimates, despite robust MRO and parts demand signaling long-term growth potential as new capacity comes online. The Aerospace Forum maintains a Buy rating, raising the price target to $79.56 based on expectations of continued deleveraging and undervaluation relative to peers, projecting a 28% upside. Net debt is expected to decline significantly by FY27, making refinancing needs manageable in FY2028-29.

Analysis

AAR Corporation (AIR) experienced a notable share price decline following the release of its Q3 2025 earnings, which failed to meet Wall Street expectations. Despite this recent underperformance, an analyst from The Aerospace Forum has reiterated a Buy rating on AIR's stock and increased the price target to $79.56, indicating a potential upside of 28%. This optimistic assessment is underpinned by robust and sustained demand in the Maintenance, Repair, and Overhaul (MRO) services and parts segments for both commercial aviation and defense. This demand is anticipated to fuel long-term growth, particularly as AAR expands its operational capacity. The company's financial position is also showing signs of improvement, with projections for a significant reduction in net debt by fiscal year 2027, which should make its refinancing obligations in FY2028-29 manageable. The analyst firm contends that AAR is currently undervalued compared to its industry peers and is successfully scaling its business, suggesting the Q3 earnings miss may represent a temporary setback rather than a fundamental flaw in its growth trajectory.

Key Decisions for Investors

• Investors should weigh AAR Corp.'s recent share price decline, a consequence of its Q3 2025 earnings miss, against the analyst's reiterated Buy rating which is based on strong MRO sector demand, ongoing deleveraging efforts, and perceived undervaluation.
• It is advisable to closely monitor AAR's upcoming financial reports, progress on new capacity integration, and achievements in net debt reduction by FY27 to validate the analyst's positive long-term thesis.
• The current valuation, following the stock's pullback, could present a buying opportunity for investors with a long-term horizon who are confident in AAR's fundamental strengths and the aerospace MRO market, while remaining cognizant of the risks highlighted by the recent earnings shortfall.