FTAI's Stock Surge Tied to Data Center Venture, But Leverage and Valuation Risks Persist

What happened

FTAI Aviation's stock reached a new high after the company raised its profitability projection, citing a new division focused on powering data centers. Recent filings show FTAI has grown aggressively in the CFM56/V2500 engine aftermarket, with 2024 segment net income of $556 million but a consolidated loss due to high interest and internalization costs. This data center initiative represents a strategic expansion beyond its core aviation business, potentially diversifying revenue streams. However, the balance sheet remains fragile with net debt/EBITDA at 7.08x, interest coverage of 2.94x, and volatile free cash flow, raising execution risks. While the market may be optimistic about new growth, the DeepValue report highlights that the stock already discounts ambitious 2026 guidance and offers no margin of safety given the financial strain.

Implication

The new data center venture could provide incremental revenue, but it is untested and may require capital that exacerbates FTAI's already high debt burden. FTAI's core aviation business, while segment-profitable, is constrained by $254 million in interest expense and a thin equity base, with a DCF based on historical FCF implying negative intrinsic value. Diversification into data centers risks distracting from the engine aftermarket focus, which faces regulatory and obsolescence threats as CFM56/V2500 fleets age. With the stock trading at a P/E of 35.76x and EV/EBITDA of 43.41x, expectations are elevated, leaving little room for missteps in executing both the new venture and existing growth targets. Therefore, investors should maintain a sell or trim stance, prioritizing evidence of sustained positive free cash flow and deleveraging over speculative expansion narratives.

Thesis delta

The introduction of a data center division shifts FTAI's strategy toward diversification, adding a new growth avenue beyond aviation leasing and engine aftermarket. However, this does not change the fundamental thesis that the company is overleveraged, cash-flow volatile, and trading at rich multiples, with the DeepValue report's 'POTENTIAL SELL' recommendation still valid due to unaddressed financial risks. Investors should update their assessment to include this new venture's execution uncertainty, but the core downside risks from high debt and valuation remain paramount.