Good post WD. Market hates uncertainty and in AIR's most recent profit update at their so called investor day they wouldn't / couldn't quantify the effect of increased competition in the new environment in which they now operate.
http://www.4-traders.com/AIR-NEW-ZEA...07/financials/
What they did quantify however which surprised me was circa $120m of non repeating currency benefits they're getting this year that won't repeat going forward. It therefore surprises me in this new yield challenged market era of hot competition that analysts have currently estimated net profit before tax for FY17 of $781m which is only a consensus drop of $56m, (less than half the currency non repeating benefit and no account for extra competition) from the average view of net profit before tax of $837m this year. I think there is potential for analyst downgrades, (current average analyst estimate for FY18 is $574m before tax).
I said privately yesterday to an investor that I see profit before tax of $500m - $600m for FY 17 so I'm considerably more bearish on the extra competition than analysts are.
Its interesting however that if we stick with the official FY18 figure of $574m and call that year some sort of average mid cycle year then the stock is on a PE of only 5.5 at that level vs a ten year average of double that at 11 !
I think the market has got a little over cautious of the outlook and agree the stock has been marked down far harder than most but until AIR's management clarify their FY17 outlook (which they probably won't do until the annual meeting in late Sept), uncertainty is the order of the day and for that reason I am cautious at this stage.
I think there is a genuine risk of analyst downgrades for FY17 and FY18 and have already built that into my thinking. I think the stock is eminently investable at the current price, (notwithstanding competition headwinds) but I can't see a catalyst for a rapid rerating back over $2.50.
Disc: Holding a sensible sized allocation for strong fully imputed dividend yield and not expecting rapid SP gains in the short term.