StandardAero, Inc. (NYSE: SARO) priced its initial public offering of 60 million shares (upsized from 46.5 million) at $24.00 per share on October 1, 2024. Its quiet period has now ended so analysts who cover the stocks from the underwriting syndicate can begin their research coverage with price targets.

The shares being sold included 53,250,000 which were issued and sold by StandardAero for the company’s benefit. The other 6,750,000 shares were sold by original private equity holders affiliated with the private equity company Carlyle Group (NASDAQ: CG). And after the offering, Carlyle and its clients/affiliates still own the majority of this company likely for some time to come. Its other top holder is the Singapore investment giant GIC.

Its total shares of common stock outstanding after the offering was listed as 334,461,630 shares. The company outlined its ownership structure after the offering (or assuming the overallotment option was exercised in full):

• Carlyle’s stake was put at 65.2% (or 63.0%) of the total outstanding common stock;
• and GIC’s stake was put at 14.7% (or 14.2%) of the total outstanding common stock.

StandardAero’s first trading day posted an opening bell price of $31.00 and the stock closed at $32.75 on almost 27.3 million shares that first day.
The stock most recently closed at $30.25, but after a 1.5% drop on the day of the initial analyst calls its post-IPO trading range is now $29.27 to $34.38.

HOW WALL STREET TARGETS LOOK

So what do analysts think of the company? For starters, StandardAero a pure-play aerospace engine aftermarket services provider that serves the commercial, military and business aviation markets. Its aftermarket solutions include engine maintenance, repair and overhaul, engine component repair, on-wing and field service support, asset management and engineering solutions.

Its lead book-running managers for the IPO included Carlyle, CIBC Capital Markets, HSBC Securities (USA) Inc., Mizuho Securities USA LLC, Societe Generale and Wolfe | Nomura Alliance acted as joint book-running managers. Co-managers for the IPO included Citizens JMP Securities, LLC, Macquarie Capital, Santander, AmeriVet Securities, Inc. and Drexel Hamilton.

Below are the analyst summary calls that have been initiated so far:

• Bernstein — Outperform — target at $39.00
• BofA — Neutral — target at $34.00
• Jefferies — Buy — target at $38.00
• JPMorgan — Overweight — target at $36.00
• Morgan Stanley — Equal-Weight — target at $33.00
• RBC — Outperform — target at $37.00
• UBS — Neutral — target at $34.00
• Wolfe Research — Outperform — target at $34.00

If these eight analyst price targets were all to consider then it would result in a consensus analyst price target of $35.62 by averaging them all out equally. That represents roughly 19% in implied upside from the current $29.75 share price — if the analysts are proven correct as a whole.

OTHER CONSIDERATIONS

Several things should be kept in mind here before even considering which of the analyst price targets to consider or not consider:

• StandardAero has not yet had a formal earnings report as a public company.
• Carlyle and its affiliates own the majority of this stock outstanding.
• The analyst community has no experience with StandardAero as a standalone stock.
• For 2023, its revenue of $4.56 billion was a 10% gain from the $4.15 billion in 2022.
• For 2023, its net loss was $35.1 million and adjusted EBITDA was $561.1 million (up 18.0% from 2022).
• The company’s history of net losses was tied to a total debt of $3.2757 billion, so its cash flows have to pay the interest on that debt.
• Over the past 7-year period it has successfully completed 11 strategic acquisitions.

WHAT’S IT MARKET & OPPORTUNITY?

StandardAero has offered its own assessment of its current total addressable market focus:

The aerospace aftermarket accounts for a significant portion of the total aerospace market and is expected to total over $250 billion in 2024. Within the aftermarket, one of the most crucial and fastest growing sub-segments is engine aftermarket services, which accounts for approximately 45% of the commercial aerospace aftermarket.

Its aftermarket services are done on both the Airbus A320neo family and the Boeing 737MAX series. The company noted about the culmination of these into the largest engine platform family globally at 35% of installs by 2033. It added:

We are one of only five total CBSA holders in the world, one of two global independent service providers, and the only independent service provider in the Americas with such a CBSA, which affords us significant competitive benefits and support from CFM, as well as the ability to develop and provide additional component repair on the engines that we service and to external parties. The CBSA has the potential to be the largest award in the Company’s history, and we believe it positions us to achieve above-market growth as LEAP engines experience a significant ramp up in demand over the next decade and beyond.

OVERHANG OF PRIVATE EQUITY IPO SHARES

Perhaps the biggest issue that all post-IPO investors need to consider is that private equity firms are likely to remain sellers of the companies they bring public. On top of the shares already sold, the 80% or so that would still be owned by Carlyle and GIC combined would come to around 260 million shares.

Lock-up dates can be different for each deal. And just because sales become free to sell, it doesn’t mean they are always sold. While one never knows the price trajectory (and the market) after a large IPO, it generally can be expected that private equity backers will sell shares after a six-month hold and thereafter if the shares rise further or hold firm.

Private equity groups can take years before they finally exit. By selling the shares it gives their private equity clients and affiliates final returns and that capital can then be redeployed into new companies to be taken private. That has been the case for private equity-backed IPOs like HCA, Dollar General, Petco, Charter, Kinder Morgan, Ally and others.

DISCLAIMER & NOTICE

Tactical Bulls has highlighted outside brokerage research reports and independent reports for formal ratings and for formal price targets. Those ratings and targets are the opinion of each firm named. They do not represent the opinion of Tactical Bulls as there are no internal formal ratings and/or formal internal price targets.

In no way should this be interpreted as investment advice nor is this a recommendation to buy or sell any of the companies and stocks mentioned. All investing decisions are up to each investor individually. And all investing decisions to buy, sell or hold (or to short or to avoid) should be made with a financial advisor.