AAR CORP. (AIR) Stock Forecast & Price Target

AAR is positioned for durable fundamental upside as its Parts Supply segment, the largest revenue driver, benefits from new-parts distribution wins, USM demand, and North America strength, while Repair, Engineering and Software should gain from added MRO capacity and recurring software revenue. Fiscal 1Q27 guidance for 21–23% total sales growth and 12.25–12.75% adjusted EBITDA margins excluding LCP, plus management’s 6–10% sales CAGR and 13–14%+ margin framework, supports confidence that core growth is outperforming market caution. The balance sheet is also improving, with net debt of $816M and 2.0x net leverage at 4Q26, alongside 24% adjusted operating cash conversion and further deleveraging potential as working capital efficiency and LCP wind-down visibility improve.

AAR is facing a negative fundamental setup because the legacy commercial business will remain on the books for 3-4 years while still eroding revenue by about $60M annually, limiting valuation upside and distracting from cleaner growth businesses. Its outlook is further pressured by early weakness in the global MRO market, where slower passenger traffic, weaker fleet utilization, and possible shifts in maintenance activity in-house could reduce Parts Supply and Repair demand and compress margins. Government Solutions adds another layer of risk as the April 2025 OMB proposal to cut DoS budget funding by about $70M in annual revenue, while fixed-price contract exposure and a downcycle could push adj. EBITDA toward ~$420M in the downside case.