Heico (HEI +9.28%) (HEIA +0.00%) shocked the market with its second-quarter earnings report, and investors wasted no time in sending the stock higher by 10.7% at 1 p.m. today.
Heico shocks the market
Wall Street analyst upgrades and downgrades are usually a good way to gauge sentiment over a stock. In this case, Jefferies lowered its price target (but maintained its buy rating) from $400 to $375 in anticipation of the earnings report.
The earnings report came in and blew away Wall Street expectations in both the Flight Support Group (FSG) and the Electronic Technologies Group (ETG). Jefferies responded by hiking its price target to $410.
NYSE: HEI
Key Data Points
Skepticism ahead of the report was understandable, as a combination of soaring jet fuel prices, route closures in the Middle East, and airlines cutting capacity has led companies to lower estimates of flight departures. For example, GE Aerospace lowered its expectations for flight departures in 2026 to flat to low-single-digit growth from a previous estimate of mid-single-digit growth.
Lower flight departures are an issue for Heico's FSG because it provides Federal Aviation Administration (FAA) approved aftermarket replacement parts, and fewer flight departures usually mean less aftermarket demand.
However, Heico reported no weakness in its end markets, with FSG sales coming in at $929 million, above the pre-earnings consensus of $864 million, and ETG sales at $460 million, above the pre-earnings consensus of $396 million. All consensus figures courtesy of S&P Global Market Intelligence.
Image source: Getty Images.
Where next for Heico
Discussing the outlook for commercial aerospace on the earnings call, CEO Victor Mendelson took the view that "while short-term shocks like the current just war might create short-term disruption in the inexorable upward trend, the short-term disruptions are, by definition, always brief," and, "Fuel prices eventually settle back. spurring even more growth."
The latter view is supported by GE Aerospace's management, which believes above-average growth will follow a temporary slowdown, and by Delta Air Lines, which confirmed that end-demand remains strong even as it cuts capacity amid higher jet fuel costs.
It's hard not to think Heico will get hit if the conflict persists, but right now, its business is firing on all cylinders.
