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HEICO Corporation Gains on Disciplined Acquisition Strategy

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We recently issued an updated research report on HEICO Corporation HEI. The company’s adjusted earnings in first-quarter fiscal 2020 came in at 89 cents per share, which surpassed the Zacks Consensus Estimate of 77 cents by 15%.

HEICO Corp. currently holds only 2% of the market for jet engine and aircraft component replacement parts. Therefore, the company is left with immense scope for expansion in this space.

What’s Driving the Stock?

HEICO Corp.’s disciplined acquisition strategy has been an important element for its overall growth, further supplementing its organic growth. In December 2019, the company announced that its ETG acquired 80.1% of the rapidly-growing Quell Corporation stock in an all-cash transaction. The company expects the acquisition to be accretive to its earnings within the first year following the closing. The company successfully completed two acquisitions, as of Jan 31, 2020, and seven in fiscal 2019. We expect such acquisitions to expand the company’s product portfolio and customer base, which in turn should keep its cash flow in a good shape.

HEICO Corp. continues to exhibit a solid financial performance. The company exited the first quarter of fiscal 2020 with cash and cash equivalents of $64 million compared with $57 million as of Oct 31, 2019. Moreover, cash provided by operating activities was $81.1 million at the end of the quarter compared with $49.6 million in the year-ago quarter. Such a strong balance sheet and cash flow generation capacity provide the company with financial flexibility in matters of dividend hikes and earnings-accretive acquisitions.

Estimates for HEICO Corp. have been revised upward over the past 30 days. The company’s bottom line also exceeded the consensus mark in the trailing four quarters.

However, HEICO Corp. has a significant presence in the commercial aerospace market, which is cyclical in nature. As a result, it is exposed to adverse foreign currency movements along with the imposition of taxes, export controls and tariffs.

Zacks Rank & Other Key Picks

HEICO Corporation currently carries a Zacks Rank #2 (Buy).

A few similar-ranked companies in the same sector are Transdigm Group Incorporated TDG, AAR Corp. AIR and Leidos Holdings (LDOS - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Transdigm Group delivered a four-quarter earnings beat of 10.67%, on average. It currently has a solid long-term earnings growth rate of 12.7%.

AAR Corp. delivered a four-quarter earnings beat of 8.07%, on average. The Zacks Consensus Estimate for 2021 earnings has increased 0.7% to $3.01 in the past 60 days.

Leidos Holdings delivered a four-quarter earnings beat of 11.19%, on average. It currently has a solid long-term earnings growth rate of 7.5%.

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