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HEICO Corporation (HEI) Gains on Disciplined Acquisition Strategy

We recently issued an updated research report on HEICO Corporation HEI. The company’s adjusted earnings in first-quarter fiscal 2021 came in at 51 cents per share, which surpassed the Zacks Consensus Estimate of 46 cents by 10.9%.

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 also driving its overall performance, further supplementing its organic growth. Notably, during fiscal 2020, the company successfully completed six acquisitions. Of these, the most significant one involves the acquisition of the business, assets and certain liabilities of Pyramid Semiconductor LLC by HEICO Corporation's Electronic Technologies Group in March 2021. 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 2021 with cash and cash equivalents of $399.4 million compared with $64 million at the end of the first quarter of fiscal 2020. Moreover, cash provided by operating activities was $107.2 million at the end of the quarter compared with $81.1 million in the year-ago quarter. Such a strong balance sheet and cash-flow generation capacity provide the company financial flexibility in matters of dividend hikes and earnings accretive acquisitions.

However, the pandemic had an adverse impact on the company’s overall top-line performance, resulting in a 17.5% decline in its fiscal first-quarter 2021 net sales. Looking ahead at fiscal 2021, the pandemic is likely to continue to negatively impact the commercial aerospace industry, and thereby Heico Corp. Since one cannot estimate the duration and magnitude of the virus outbreak, the company cannot confidently predict when demand for its commercial aerospace products will return to pre-outbreak levels. This surely remains a cause of concern for investors.

Zacks Rank & Key Picks

HEICO Corporation currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Teledyne Technologies Incorporated TDY, Raytheon Technologies Corporation RTX and Ducommun Incorporated DCO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Teledyne Technologies delivered a four-quarter earnings beat of 8.52%, on average. The Zacks Consensus Estimate for 2021 earnings has increased 0.4% to $11.45 per share in the past 60 days.

Raytheon Technologies delivered a four-quarter earnings beat of 96.36%, on average. It currently has a solid long-term earnings growth rate of 12.9%.

Ducommun Incorporated delivered a four-quarter earnings beat of 64.76%, on average. The Zacks Consensus Estimate for 2021 earnings has increased 2.2% to $2.80 per share in the past 60 days.

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