HEICO Corp. – Value Analysis (NYSE:HEI.A) : October 17, 2017

Capitalcube gives HEICO Corp. a score of 84.

Our analysis is based on comparing HEICO Corp. with the following peers – Esterline Technologies Corporation, Triumph Group, Inc., United Technologies Corporation, Wesco Aircraft Holdings, Inc, SIFCO Industries, Inc. and General Electric Company (ESL-US, TGI-US, UTX-US, WAIR-US, SIF-US and GE-US).

Investment Outlook

HEICO Corp. has a fundamental score of 84 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It currently trades at a Price/Book ratio of (2.88).
  • HEI.A-US‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • HEI.A-US has relatively high profit margins while operating with median asset turns.
  • Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
  • HEI.A-US‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s relatively high gross and pre-tax margins suggest a differentiated product portfolio and tight control on operating costs relative to peers.
  • While HEI.A-US‘s revenues in recent years have grown faster than the peer median, the market gives the stock a P/E ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • HEI.A-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

HEI.A-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 6.59% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 40.85%), and a well-cushioned interest coverage level of 35.41x, HEI.A-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 6 peers for the company have an outstanding debt balance.

HEI.A-US has maintained its Quick & Able profile from the recent year-end.

  • HEI.A-US‘s interest coverage has increased 2.58 points from last year’s low but is still below its five-year average interest coverage of 46.81.
  • While its interest coverage increased to 35.41x from 32.82x (in 2016), its peer median decreased during this period to 3.11x from 4.57x.
  • Interest coverage rose 4.05 points relative to peers.
  • HEI.A-US‘s debt-EV is its lowest relative to the last five years and compares to a high of 12.08% in 2013.
  • While its debt-EV decreased to 6.59% from 9.88% (in 2016), its peer median increased during this period to 40.85% from 36.91%.
  • Relative to peers, debt-EV fell 7.23 percentage points. Unlike the peer median, it is also below the 25% leverage benchmark.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Esterline Technologies Corporation 23.27 3.22 6.68 30.18
Triumph Group, Inc. 45.56 1.43 2.92 23.42
United Technologies Corporation 22.77 1.37 6.19 34.74
Wesco Aircraft Holdings, Inc 45.84 4.06 3.11 15.08
SIFCO Industries, Inc. 48.62 1.16 -2.65 7.72
General Electric Company 40.85 1.34 2.83 8.11
HEICO Corporation Class A 6.59 2.89 35.41 59.91
Peer Median 40.85 1.43 3.11 23.42
Best In Class 6.59 4.06 35.41 59.91

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Company Profile

HEICO Corp. engages in the provision of flight support and technology equipment. It operates through the Flight Support Group (FSG) and Electronic Technologies Group (ETG). The FSG segment designs, manufactures, repairs, overhauls and distributes jet engine and aircraft component replacement parts, as well as manufactures and sell specialty parts as a subcontractor for aerospace and industrial original equipment manufacturers and the United States government. The ETG segment designs and manufactures electronic, microwave, and electro-optical equipment and components, three-dimensional microelectronic and stacked memory products, high-speed interface products, high voltage interconnection devices, high voltage advanced power electronics products, power conversion products, underwater locator beacons, electromagnetic interference shielding, traveling wave tube amplifiers, harsh environment electronic connectors and other interconnect products, communications and electronic intercept receivers and tuners, crashworthy, and ballistically self-sealing auxiliary fuel systems for military rotorcraft, RF and microwave amplifiers, transmitters and receivers, satellite microwave modules, and integrated subsystems primarily for the aviation, defense, space, medical, telecommunications, and electronics industries. The company was founded in 1957 and is headquartered in Hollywood, FL.

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