We came across a bullish thesis on FTAI Aviation Ltd. (NASDAQ:FTAI) on ValueInvestorsClub by coalone. In this article, we will summarize the bulls’ thesis on FTAI. The company’s shares were trading at $169.00 when this thesis was published, vs. the closing price of $113.13 on Mar 05.

A giant commercial airliner surrounded by mechanics and engineers, emphasizing the scale of the leasing and servicing company.

FTAI owns and acquires aviation and offshore energy equipment for the transportation of goods and people worldwide. It operates through two segments, Aviation Leasing and Aerospace Products.

One of the biggest opportunities for FTAI is the low penetration of its aircraft engine CFM56 module swap business which has an addressable market penetration of only 8.5%. Based on product quality and favorable business conditions, the projected market share is expected to touch 25% in 2027. FTAI has also benefited from the production lag for Boeing and Airbus which has led to longer run times for aging planes. It has created an opportunity for FTAI’s Maintenance, Repair, and Overhaul (MRO) shops which have to work overtime to meet the increasing demand for repair services.

The module swap business is also thriving under favorable supply-demand dynamics, leading to high single-digit growth in pricing. Currently, the company earns $775k per module and this is expected to increase to $873k by 2027 year-end. The PMA parts business is also awaiting FTAI approval and can add $550k per module now with an estimated $740k by 2027 year-end.

The V2500 market has also been underplayed by the management and offers tremendous opportunity due to issues with the GTF engine. By offering to swap old V2500 engine parts with OEM parts that are reasonably priced, FTAI is looking to capture 30-40% of the addressable market in a few years. The EBITDA contribution per exchange is currently $4 million and should reach ~$5 million by 2027.

The stock currently trades close to 14x its consensus forward EBITDA estimates. While this seems a reasonable valuation, the stock is available at a bargain considering the forward projections. Based on its 2027 and 2028 EBITDA estimates, the current multiple stands at ~4x and ~3x, making it a highly undervalued proposition. The fair value in 3 years should be $700, offering a 6-fold increase in value.

While we acknowledge the potential of FTAI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FTAI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.