Why Shares of Heico Soared on Wednesday

The quarterly winning streak for the aerospace component manufacturer continues.

Lou Whiteman
Lou Whiteman
May 29, 2019 at 3:11PM
Industrials

What happened

Shares of Heico (NYSE:HEI) had climbed more than 11% as of 2:43 p.m. EDT on Wednesday, after the aerospace component manufacturer reported quarterly results that were better than expected and raised guidance for the full year.

So what

After markets closed Tuesday, Heico reported fiscal second-quarter earnings of $0.60 per share on revenue of $515.6 million, easily surpassing consensus estimates for $0.49 per share in earnings on revenue of $480 million. The company generated double-digit organic growth in both its flight support and electronics segments, on top of the benefit from several bolt-on acquisitions.

Two jets leaving contrails against a blue sky

Image source: Getty Images.

The company's consolidated operating margin for the quarter was 23.1%, up from 21.3% a year ago. EBITDA (earnings before interest, taxes, depreciation, and amortization) grew by 29% to $142.2 million.

Heico CEO Laurans Mendelson said in a statement that based on the results for the first half of the fiscal year, the company is upping its full-year guidance for net revenue growth to between 12% and 13%, from 9% to 11% previously; guidance for full-year net income growth is up to between 17% and 18%, up from 11% to 13% previously.

Now what

Heico is a long-term outperformer, but investors pay a rich premium for those results. The company trades at a multiple of 53 times trailing earnings, substantially ahead of TransDigm Group's multiple of 30.

To justify its sky-high valuation, Heico will have to continue to be an active acquirer, on top of its projections for organic growth.

Mendelson said in his statement that "we plan to continue our commitments to developing new products and services, further market penetration, and an aggressive acquisition strategy while maintaining our financial strength and flexibility."