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Why Shares of Heico Are Up Today

By Lou Whiteman - May 27, 2020 at 1:30PM

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Quarterly earnings came in ahead of expectations.

What happened

Shares of Heico (HEI 1.26%) traded up more than 5% on Wednesday afternoon, and soared as high as up 10% earlier in the day, after the aerospace component manufacturer reported fiscal second-quarter results that came in ahead of expectations.

So what

After markets closed Tuesday, Heico reported second-quarter earnings of $0.55 per share on revenue of $468.1 million, beating Wall Street expectations for $0.44 per share in earnings on $462.86 million in revenue.

An aircraft assembly line.

Image source: Getty Images.

Investors went into earnings season bracing for the worst from commercial aerospace, with the COVID-19 pandemic causing airlines to retrench by grounding planes and postponing expansion plans. Heico's total revenue fell 9% year over year, weighed down by an 18% drop from the company's aerospace units.

Heico is at an advantage over some of its peers because it also has a substantial non-aerospace business, including supplying components to in-demand medical items such as ventilators. Revenue from Heico's non-aerospace units rose slightly compared to 2019, helping to offset some of aerospace's weakness.

"Our businesses that operate within the commercial aerospace industry have been materially impacted by the significant decline in global commercial air travel that began in March 2020," said CEO Laurans A. Mendelson in a statement. The quarter ended April 30, as airlines were still in the process of cutting costs, and the third quarter is likely to be weaker than the three months that were just reported.

Now what

Heico is among the best buys in the commercial aerospace sector due to its exposure to other businesses, but the results are a reminder the company is not immune to the deep slide in aircraft demand.

Mendelson remains optimistic, arguing that Heico's products that are focused on flying more efficiently will be in demand as airlines try to recover. "Once commercial air travel resumes, cost savings will most likely be a priority for our commercial aviation customers and we anticipate recovery in demand for our commercial aviation products, which frequently provide aircraft operators with significant savings," he said.

That remains to be seen, but with its relatively pristine balance sheet -- just $393.4 million in net debt -- and its non-aerospace businesses, Heico looks like a safe haven for investors who want some exposure to commercial aerospace without feeling the full brunt of what could be a multi-year slump in new plane sales.

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