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Heico Corporation (HEI) Up 4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Heico Corporation (HEI). Shares have added about 4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Heico Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

HEICO Q2 Earnings Beat Estimates, Sales Decline Y/Y

Shares of HEICO Corporation (HEI) inched up 0.3% to $135.51 on May 26, reflecting investor optimism following the company's fiscal second-quarter results

The company reported second-quarter fiscal 2021 earnings of 51 cents per share, which surpassed the Zacks Consensus Estimate of 49 cents by 4.1%. The bottom line, however, declined 7.3% from the prior-year quarter’s 55 cents.

The year-over-year deterioration can be attributed to adverse impacts of the COVID-19 pandemic.

Total Sales

Quarterly net sales of $466.7 million beat the Zacks Consensus Estimate of $443 million by 5.4%. The top line, however, slipped 0.4% from the year-ago quarter’s $468.1 million on account of moderate demand witnessed for the company’s commercial aerospace parts and services as a result of the pandemic’s impact.

Operational Update

HEICO’s total costs and expenses declined 6.3% year over year to $707.5 million in the quarter under review. The decline was due to lower cost of sales, which offset the increase in selling, general and administrative expenses.

Segmental Performance

Flight Support Group: Net sales declined 8.6% year over year to $230.3 million primarily due to lower demand for the majority of its commercial aerospace products and services.

Operating income also slumped 25.3% year over year to $35.5 million, courtesy of a decrease in net sales and higher performance-based compensation expense.

Further, its operating margin contracted 350 basis points (bps) to 15.4% year over year in the second quarter of fiscal 2021.

Electronic Technologies Group: Net sales increased 11% year over year to $243.1 million primarily owing to favorable contributions from its fiscal 2020 and 2021 acquisitions, along with organic growth of 3%.

Operating income increased 9% year over year to $71.3 million, primarily on account of quarterly net sales growth.

However, the company’s operating margin contracted 60 bps to 29.3% in the second quarter of fiscal 2021.

Financial Details

As of Apr 30, 2021, cash and cash equivalents totaled $385.4 million compared with $399.4 million as of Jan 31, 2021.

Long-term debt (net of current maturities) totaled $583.4 million as of Apr 30, 2021, down from $668.6 million as of Jan 31, 2021.

Cash flow provided by operating activities was $210.1 million at the end of second-quarter fiscal 2021 compared with $205.9 million at the second quarter of fiscal 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Heico Corporation has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Heico Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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