Heico: The Biggest Player in the Niche Independent Aerospace Parts Market Has a Narrow Moat

We are initiating coverage of Heico HEI with a fair value estimate of $162 per share, which represents 40 times fiscal 2024 earnings and an enterprise value that is 26 times our forecast 2024 EBITDA. While these multiples are higher than other industrial companies, we are forecasting Heico’s ample opportunity for accretive acquired growth in a fragmented industry.

Heico excels at producing replacement parts for aircraft and engines and certifying these as equivalent to the original parts made by aircraft or engine manufacturers under the Federal Aviation Administration’s parts manufacture authority regime. PMAs are a small part of the overall aerospace parts market, but Heico dominates it, supplying about half of all third-party spare parts for the commercial aftermarket, which we think is tangible evidence of the barrier to entry in action and a strong reason we assign the company a narrow moat rating.

The company lists Class A shares with only one tenth the voting rights of its regular common shares under the listing HEI.A. The company uses these shares to pay for some acquisitions and in some of its compensation plans. We think investors should only consider the regular voting shares listed as HEI in their portfolios.