Why Willis Lease Finance (WLFC) is on investors’ radar

Willis Lease Finance (WLFC) has drawn attention after a strong year to date share price return of 30.1%, even as the stock is down about 10% over the past month.

That mixed share performance sits against a business generating US$753.47 million in revenue and US$116.251 million in net income, prompting investors to reassess how the engine leasing specialist is currently valued.

With the share price at US$174.53, WLFC has given investors a 30.1% year to date share price return and a 27.3% total shareholder return over 12 months, although recent 30 day and 90 day share price returns show momentum fading in the short term.

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With WLFC trading at US$174.53 against a US$226.00 analyst price target, and following a recent pullback after strong year to date gains, investors may question whether there is still an attractive entry point or if markets are already pricing in future growth.

Price-to-Earnings of 10.6x: Is it justified?

On a P/E of 10.6x, Willis Lease Finance trades at a lower earnings multiple than both the wider US market, at 18.8x, and the US Trade Distributors industry, at 24.9x.

The P/E multiple tells you how much investors are paying for each dollar of current earnings. This can be useful when looking at a profitable, established leasing and parts business like WLFC. A lower multiple than peers can signal that the market is assigning a more cautious earnings outlook, or that it has not fully reflected WLFC's profit track record in the share price.

WLFC's current P/E of 10.6x is at a clear discount compared with both its domestic market and its sector. Relative to the peer average P/E of 54.3x, that discount is even more pronounced, which suggests investors are valuing WLFC's earnings more conservatively than those of similar companies.

Result: Price-to-Earnings of 10.6x (UNDERVALUED)

However, the recent share price pullback and WLFC's dependence on aircraft and engine leasing demand mean that any slowdown in customer activity could quickly challenge the current valuation story.

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Another View: Cash Flows Paint A Tougher Picture

While the 10.6x P/E suggests WLFC looks inexpensive against the US market and its industry, the SWS DCF model points in the opposite direction. At a share price of $174.53 versus an estimated future cash flow value of $28.73, the stock screens as heavily overvalued on this measure.

When one approach flags WLFC as inexpensive on earnings and another highlights a large gap to its future cash flow value, it puts the spotlight on which set of assumptions you trust more and how much valuation risk you are comfortable taking on at today’s price.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Willis Lease Finance for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 46 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment in this article understandably mixed, it makes sense to move quickly and test the numbers for yourself rather than rely on headlines alone. To weigh up both sides of the story, including 1 or more risks and 1 or more rewards that investors are watching, start by reviewing the 2 key rewards and 2 important warning signs

Looking for more investment ideas?

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• Target quality at a discount by scanning our list of 46 high quality undervalued stocks that combine appealing pricing with strong fundamentals.
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• Spot early standouts by checking the screener containing 22 high quality undiscovered gems before they appear on everyone else's radar.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.