AeroCentury: Ready for takeoff

AeroCentury Corp. (AMEX: ACY)
Burlingame, Calif.
http://www.aerocentury.com
 
52-week low / high: $10.95 / $ 26.67
Shares Outstanding: 1.54 million
Market Capitalization: $21 million 

The airline industry is an ugly industry characterized by skyrocketing costs and fierce competition. But one little-known company seems to have carved out a niche that’s paying off.

AeroCentury Corp. (AMEX: ACY) invests in used regional aircraft and engines that are leased to foreign and domestic regional air carriers under triple net operating leases. Most of the company's business is conducted overseas: Europe and the United Kingdom accounted for 39% of 2006 revenue, Asia for 25% and the Caribbean for 21%. The remainder is spread equally among the United States, Canada, Africa and South America.

As of Sept. 30, 2007, the company owned eight deHavilland DHC-8-300s, three deHavilland DHC-8-100s, three deHavilland DHC-6s, fourteen Fokker 50s, two Saab 340As, six Saab 340Bs, four Fokker 100s and one turboprop engine.

The company attributes its competitive edge in the sector to JetFleet Management Corp. (JMC), an aircraft management, marketing and financing business that seeks out shrewd acquisitions for the company. JMC has a vested interest in AeroCentury, as certain company officials are also officers of JMC.  

And JetFleet has certainly guided for some smart acquisitions, as revenues have taken off and look as though they will continue to reach higher altitudes.

For the three months ended Sept. 30, 2007 — the latest period for which financial data was available—the small cap saw revenues soar 37.6% to $6.39 million from $4.64 million. For the nine months ended Sept. 30, 2007, AeroCentury recorded revenues of $16.43 million, up 19.48%, from $13.75 million.

AeroCentury’s bottom-line results are even more impressive. For the latest quarter, net income surged 246% to $1.06 million, while net income rocketed 1540% to $2.5 million through the third quarter of 2007.

The company continues to blow away analyst estimates, as it has blown away earnings projections by triple digit percentages for the past four quarters in a row.

What’s more, AeroCentury trades at a discount to the industry. Its trailing price-to-earnings (P/E) is 6.7, while its forward P/E is 6 times forward earnings, compared with the industry which trades at a trailing P/E of 13.54. Analysts are looking for $2.25 EPS in FY2008. An analyst polled by Thomson Financial has a $23 call on the stock, which is currently trading at $13.75 .

Keep an eye on this microcap. If its stock price performance proves to be anything like its revenues and net income, investors are in for a fun ride.

For more on the company, read AeroCentury Corp.: The real friendly skies, published on Jan. 7, 2008.

Note: AeroCentury Corp. (AMEX: ACY) is on the “Watch List” of Rising Star Stocks, a subscription investment newsletter from Business Financial Publishing, which also publishes SmallCapInvestor.com. As a Watch List company, AeroCentury displays many characteristics found in successful stock winners, and is being closely monitored for possible inclusion in the Rising Star Stocks portfolio at a later date.

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