HEICO Corporation

HEI Details

HEICO Corporation (NYSE: HEI) is mainly engaged in the design, production, servicing as well as distribution of the products and services to certain niche segments of the aviation, defense, space, medical, telecommunications and electronics industries. 

Result Performance (Half-Year Ended 30 April 2021 – H1FY21):

Key Metrics: Net income of the company for the interim period stood at $141.3 million, as compared to $197.3 million in the previous corresponding period (pcp). Net income in Q2FY21 stood at $70.7 million, as compared to $75.5 million in pcp. Operating income was $177.0 million in H1FY21, as compared to $219.2 million in H1FY20.

Robust Cash Flow from Operating Activities:  EBITDA was $224.0 million in H1FY21, as compared to $262.7 million in H1FY20. Its net debt to EBITDA ratio improved to 0.47x as of April 30, 2021, down from 0.71x as of October 31, 2020. Cash flow provided by operating activities remained strong, increasing 2% to $210.1 million in H1FY21, as compared to $205.9 million in H1FY20.

Key Data (Source: Company Reports)

Outlook:

No FY21 Guidance Due to Uncertainty: The company is cautiously optimistic that the ongoing worldwide rollout of COVID-19 vaccines will have a positive influence on commercial air travel and generate favorable economic environments in the markets the company serves. However, the pace of recovery in the global travel is difficult to predict as well as could be adversely influenced by the new COVID-19 variants and varying rates of the vaccine adoption. Considering these uncertainties, the company has not provided fiscal 2021 net sales and earnings guidance.

Key Risks:

The company is susceptible to certain risks such as imposition of taxes, export controls, tariffs, embargoes, and other trade restrictions; and compliance with a variety of international laws, as well as U.S. laws affecting the activities of the U.S. companies abroad such as the U.S. Foreign Corrupt Practices Act.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Technical Overview: Daily Price Chart

Source: REFINITIV; Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The company’s gross margin, EBITDA margin and net margin for Q2FY21 stood at 38.5%, 25.6% and 16.4%, better than the industry median of 27.5%, 12.8% and 5.8%, respectively implying decent fundamentals.

The stock has been valued based on EV/EBITDA relative valuation (on an illustrative basis) and the target price reflects a decline of low double-digit (in % terms).  A slight discount to EV/EBITDA Multiple (NTM) (Peer Average) has been applied considering fall in the net sales in H1 FY 2021 on the YoY basis as well as the risks associated with the business. The stock of the company improved by ~21.75% in 1 year. It has made a 52-week low and high of $99.55 and $148.95, respectively.

Considering the aforesaid facts, we give a “Sell” recommendation on the stock at the current market price of $128.96 per share as on 16th August 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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