AAR CORP. (AIR) Stock Forecast & Price Target

AAR is well positioned for continued upside because its core aftermarket businesses are compounding strongly, with 4Q26 organic adjusted sales up 13% and new parts distribution up 19%, supported by record component MRO activity, higher airframe MRO volumes, and rising Trax recurring revenue. Its fiscal 1Q27 guide for 21–23% total sales growth and 12.25–12.75% adjusted EBITDA margins, both excluding Legacy Commercial Programs, suggests robust operating leverage, while new distribution agreements and MRO capacity coming online in 1Q27 should further support growth. Fundamentally, the company is improving mix and execution, with net debt of $816 million, leverage down to 2.0x, and strong cash conversion, yet the stock still appears undervalued relative to peers despite a manageable ~50 bps LCP margin headwind.

AAR is exposed to a fragile mix of commercial aviation cyclicality and government contract risk, making its earnings base vulnerable if MRO spending weakens or fleet utilization slows. Even under only 10% top-line growth through 2028, the downside case implies adjusted EBITDA of about $420 million, and a lower valuation multiple could follow if investors grow wary of execution and margin pressure. The government segment adds another overhang, with the April 2025 OMB proposal potentially cutting available funding by about $70 million in annual revenue, while terminated and disputed contracts, including a $29.4 million receivable and at least $32 million in litigation exposure, heighten cash flow and balance sheet risk.