Heico Earnings: Wencor Deal Brings Growth and Reinforces Aerospace Parts Moat; Valuation Unchanged

Heico HEI reported its fiscal third-quarter earnings broadly consistent with our forecast, and our fair value estimate remains $162 per share.

While the company reported more sales in the quarter than we expected, cost growth brought profits down much closer to our expectation. We aren’t surprised by short-term cost fluctuations in the current operating environment, and we haven’t altered our longer-term expectations for the company’s gradual margin expansion as it grows.

A good chunk of growth will materialize in the company’s October quarter as it completed its acquisition of Wencor earlier in August. Wencor is about one quarter Heico’s size and its largest acquisition to date. The companies are both established players in the engineering, manufacture, and sales of aerospace parts under the Federal Aviation Administration’s parts manufacturer approval regime, with largely complementary catalogs and distribution footprints, and we think the union reinforces Heico’s narrow moat.