AerCap's Q4 Beat and Buyback Surge Highlight Cyclical Strength and Valuation Risks

What happened

AerCap reported Q4 EPS of $15.37, significantly exceeding expectations and driving a 9.3% stock surge as gains from asset sales fuel aggressive share repurchases. Lease revenue grew 11%, supported by higher basic and maintenance rents, reflecting ongoing tight aircraft supply and high utilization near 99%, as noted in the DeepValue report. The company guided 2026 adjusted EPS to $12-$13, excluding asset sale gains, indicating management's confidence in core leasing economics despite potential normalization of trading margins from recent highs. However, the DeepValue report warns that sustained high gain-on-sale margins and utilization are contingent on continued OEM bottlenecks, with emerging-market exposure and funding costs posing latent risks. Investors should view this performance as reinforcing the bullish narrative but must critically assess whether current valuations at ~1.4x book price in excessive optimism about cyclical tailwinds.

Implication

The Q4 beat and 2026 guidance support AerCap's ability to monetize asset sales and drive per-share growth through buybacks, aligning with the DeepValue report's base case of high-teens gain-on-sale margins and stable utilization. However, investors must recognize that adjusted EPS guidance of $12-$13 excludes asset sale gains, implying reliance on volatile trading income to exceed targets, which the report flags as a potential thesis breaker if margins compress. Aggressive repurchases at elevated prices reduce financial flexibility, increasing vulnerability if debt/equity rises above 2.5x or lease rates soften due to OEM supply recovery. With 49% of lease revenue from emerging markets, any geopolitical or credit stress could quickly undermine cash flows, necessitating close monitoring of the 90-day checkpoints like utilization and extension rates. Therefore, while the near-term momentum is positive, positioning should favor entry near the report's $135 attractive level rather than chasing the post-earnings spike.

Thesis delta

The news reinforces the core thesis of AerCap leveraging tight aircraft markets for strong earnings and buybacks, but does not materially shift the risk-reward balance. It confirms the bull case for near-term EPS growth and capital returns, yet the critical view from the DeepValue report remains unchanged: sustainability hinges on maintaining high utilization and gain-on-sale margins, with elevated stock prices amplifying downside if conditions deteriorate.