StandardAero, Inc. (SARO) stock intrinsic value fair value estimate & owner earnings analysis

StandardAero is one of the largest independent providers of aftermarket maintenance, repair and overhaul (MRO) services for aircraft engines, serving commercial aviation, business aviation, and military/helicopter customers, plus a smaller component-repair business that also serves land, marine and other markets. The company went public in October 2024 after being owned by Carlyle; the IPO's roughly $1.2 billion of primary proceeds were used to pay down debt, and that recapitalization is the single biggest reason the numbers below look so different from the business as it existed a few years ago. Revenue has grown steadily -- from $4.15 billion in 2022 to $6.06 billion in 2025 (growth of about 10%, 15% and 16% in the last three full years) -- though the pace cooled to roughly 9% year-over-year in the first half of 2026. Operating profitability, measured on an adjusted EBITDA basis, has stayed thin and essentially flat around 13%, which is typical of a capital- and labor-intensive repair business rather than a high-margin compounder. What has changed dramatically is the cost of debt: interest expense fell from about $310 million in 2023 to $282 million in 2024 to $174 million in 2025, and continued to fall in the first half of 2026, as IPO proceeds cut long-term debt from roughly $3.2 billion to about $2.2 billion. That single item explains most of the jump in bottom-line profitability last year. To estimate owner earnings, we start from operating cash flow, strip out the swings caused by working capital (which has been a persistent drag every year since 2022, as the company's long-cycle overhaul contracts tie up cash in receivables and unbilled work), and back out employee stock compensation and the portion of capital spending that funds growth rather than the upkeep of existing shops. On that basis, owner earnings for 2025 -- the first full year under the new, lighter debt load -- worked out to about $1.10 per diluted share. That compares with roughly $0.32-$0.46 per share in the more heavily indebted 2022-2024 period; because that earlier period reflects a materially different balance sheet that no longer exists, we anchor our valuation on the 2025 figure rather than blending it with the older, pre-IPO years. Earnings momentum into 2026 (net income up about 36% year-over-year in the first half) supports treating 2025 as a reasonable starting point rather than a one-off peak, even though operating cash flow was temporarily negative in the first half, consistent with the same seasonal working-capital pattern seen in the first half of 2025. We build three cases from today's owner-earnings level. The base case assumes revenue growth gradually settles from high single digits toward roughly 5% a year, with margins holding near current levels and no further big improvement from deleveraging (most of that benefit has already been captured -- long-term debt actually ticked up slightly in the most recent quarter). We explicitly did not assume the 2025 earnings growth rate (roughly 250% year-over-year) repeats; that growth was a one-time function of the debt paydown, not a sustainable trend, so the near-term growth assumption in the base case is set well below the trailing rate. The bull case assumes the new engine-repair capacity StandardAero has been building -- most notably the industrialization of the LEAP and CFM56 engine lines in San Antonio, Texas, which the company has been investing in for several years -- converts efficiently into revenue and some margin expansion, supported by the large and still-young LEAP-powered fleet that will need increasingly frequent overhauls over the next decade, much as the older CFM56 fleet has for StandardAero for two decades. The bear case reflects risks already visible in the filings: continued heavy debt (a leverage-sensitive story, since a meaningful slice of owner earnings still goes to interest), persistent working-capital consumption as the business grows, reliance on a top customer (13.8% of 2025 revenue, though down from nearly 25% two years ago) and on U.S. military spending (about 18% of revenue, which is also capped by law at no more than half of Department of Defense depot-maintenance work going to private contractors), and further cooling of the growth rate already visible in the first half of 2026. Putting those cases through a ten-year forecast plus a reasoned view of what continues after that, we get roughly $17.65 per share in the bear case, $41.18 in the base case, and $58.53 in the bull case. Given the leverage, the still-short track record as a standalone public company, and the real working-capital cash drag built into the business model, the margin-of-safety price is $15.00 per share, close to or below the bear-case estimate rather than a simple discount off the base case. The estimate also depends on a couple of quarters of clearly positive operating cash flow (rather than the negative cash flow reported in the first half of 2026) and long-term debt resuming its downward path rather than the modest uptick seen in the most recent quarter -- confirmation that 2025's stronger cash generation is durable and that the balance sheet keeps improving rather than re-leveraging. One accounting judgment worth noting: this business also spends on intangible assets each year (technical data, certifications and similar items, roughly $20-30 million a year) alongside its physical capital spending; we treated that spending the same way as equipment purchases when separating growth investment from the ongoing cost of keeping existing shops running, because both are cash costs of operating and expanding the business. Compared with our review roughly five weeks ago, this valuation range is meaningfully higher. Two things changed: first, we now apply the same fixed discount rate to every company we cover rather than adjusting it up for riskier businesses, so the spread between the bear, base and bull cases does all the work of reflecting risk instead -- that alone raises values across the board for a leveraged, thin-margin business like this one, versus a prior review that used higher, risk-adjusted discount rates in the 8-11% range. Second, rebuilding owner earnings more carefully from operating cash flow -- explicitly netting out working-capital swings and stock compensation, and splitting capital spending into growth and maintenance pieces with a consistent formula rather than an approximate 50/50 split -- actually produced a slightly lower per-share earnings estimate for 2025 ($1.10 versus roughly $1.29 previously), so the higher value range here comes entirely from the valuation approach, not from a rosier read of the business.