IBD Profiles HEICO

HEICO (HEI) joined our Buy List this year. As long-time readers know, I have a soft spot for seemingly dull companies that churn out a healthy profit year after year. That’s HEICO.

Unfortunately, HEICO not an easy company to write about. They make airplane parts and they do it well.

The good news is that Investor’s Business Daily recently featured the company. Here’s a sample:

When commercial and military aircraft parts wear down, Heico (HEI) is often the go-to supplier for replacements — and lately more of those parts have been showing their age.

It’s for a good reason, though. They’re getting used more, thanks in part to lower oil prices.

“With lower oil prices, airlines are continuing to fly the older aircraft more; they’ve slowed down their rate of retirement substantially,” Kenneth Herbert, an analyst at Canaccord Genuity, told IBD. “Older planes are much less fuel-efficient than new ones, but with oil at $40 a barrel rather than $100 a barrel, the higher cost of operating older aircraft is not nearly as bad.”

That’s just one of the reasons Heico is doing barrel rolls right now. Heico is drawing revenue from a number of sources, and sales are expected to accelerate from single-digit growth last year to double-digits this year.

Part of that will come from an acquisition of a parts supplier to military helicopters, but in Heico’s first fiscal quarter, which ended Jan. 31, the higher growth rate had already started showing up. Revenue grew 14% over the prior year to $306.2 million. Adjusted earnings rose 20% to 49 cents a share.

The company raised its 2016 forecast on revenue and now expects growth of 14% to 15% vs. 8% to 10% previously, equating to $1.35 billion-$1.38 billion. It also raised its forecast for net income growth to 10% to 13% from 8% to 10%. Analysts expect total revenue to climb 15% this year to $1.37 billion, while per-share earnings are seen rising 16% to $2.28 a share, according to Thomson Reuters.

Heico has the benefit of drawing business from both the commercial and military side of aerospace. So if there is a reduction in military spending, its commercial side can pick up some of the slack. But that’s not the case right now.

“The U.S. defense budget is rising again,” Victor Mendelson, Heico’s co-president, told IBD, adding that foreign military budgets in the Middle East and among some other U.S. allies such as South Korea and Japan are also rising. “NATO countries are involved in Syria and other hot spots. If these places heat up, there is a need for things we make.”

I liked this line:

Heico is a bit like a generic-drug maker. It provides low-cost copies of original products, which are regulated by the Federal Aviation Administration.

You can see the entire article here.

Posted by on April 27th, 2016 at 12:13 pm


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