{"id":33220,"date":"2023-07-09T02:26:43","date_gmt":"2023-07-09T06:26:43","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/heico-is-a-total-return-monster-nysehei\/"},"modified":"2023-07-09T02:26:46","modified_gmt":"2023-07-09T06:26:46","slug":"heico-is-a-total-return-monster-nysehei","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=33220","title":{"rendered":"HEICO Is A Total Return Monster (NYSE:HEI)"},"content":{"rendered":"
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Introduction<\/h2>\n

With a dividend yield of 0.1%, the HEICO Corporation (NYSE:HEI<\/span>)<\/strong> is one of the worst stocks for income-oriented investors on the market. However, that’s where the bad news ends. Headquartered in Hollywood, Florida, the company is a total return star thanks to its efficient operations in the aerospace industry.<\/span><\/p>\n

Not only is aerospace demand booming again, but HEI has perfected its job as a supplier of key parts in both commercial and defense aerospace.<\/p>\n

The company has strong pricing power, high revenue growth, and a healthy balance sheet allowing it to use M&A to its advantage.<\/p>\n

In this article, we’ll discuss all of this, starting with strength in the aerospace industry.<\/p>\n

So, let’s dive into the details!<\/p>\n

The Return Of Demand<\/h2>\n

Shortly after the pandemic, demand for narrow-body planes started, as regional traffic started to pick up rather quickly. Wide-body demand for long-haul flights remained sluggish as various nations around the globe stuck to COVID restrictions. The most prominent example is China, which isn’t just one of the biggest growth markets for aerospace demand but is also known for its zero-COVID policies.<\/span><\/p>\n

Three years after the pandemic started, things are looking great again.<\/p>\n

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Wall Street Journal<\/span><\/p>\n<\/figcaption><\/figure>\n

As reported by the Wall Street Journal, following a period of halted air travel during the pandemic, airlines were caught off guard by the pent-up demand that surged once travel restrictions eased.<\/p>\n

Airports faced overwhelming crowds last summer while airlines struggled to rehire staff and reactivate grounded planes.<\/p>\n

Recent months have seen a shift from recovery to growth mode, with airlines like IndiGo placing record orders to expand their networks and cater to domestic and international travel.<\/p>\n

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So far this year, airlines and airplane lessors have ordered 1,429 Airbus and Boeing jets, including firm deals announced this week. That is already more than the combined full-year order haul of 1,377 in 2019. Confirmed orders at this year\u2019s air show were the highest they have been since 2011, according to aerospace research firm Agency Partners.<\/em><\/p>\n<\/blockquote>\n

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Wall Street Journal<\/span><\/p>\n<\/figcaption><\/figure>\n

According to the article, Airbus (OTCPK:EADSF) and Boeing (BA), the world’s leading commercial jet manufacturers, have been struggling with supply shortages of engines, chips, and labor.<\/p>\n

As a result of these headwinds and rising demand, both companies currently have substantial order backlogs, causing airlines to reserve planes well in advance, even if delivery is scheduled years later. The scarcity of resources has turned airplane orders into reservations for slots in the backlog.<\/p>\n

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Leo Nelissen (Via Federal Reserve Bank of New York)<\/span><\/p>\n<\/figcaption><\/figure>\n

Furthermore, as supply chain issues are now easing at a rapid pace, it allows for higher production numbers down the road. This benefits suppliers like HEICO.<\/p>\n

HEICO’s A Compounder<\/h2>\n

So, what’s HEICO?<\/p>\n

With a market cap of $21 billion, the company is a global leader in the manufacturing of FAA-approved jet engine and aircraft component replacement parts, as well as electronic equipment for various industries.<\/p>\n

Established in 1957, the company has grown significantly through acquisitions, broadening its product offerings, and expanding its customer base.<\/p>\n

Over the past ten years, HEI shares have returned 720%, which includes a steep sell-off during the pandemic and two years of subdued orders. The S&P 500 has returned 224% during this period, which is impressive as well.<\/p>\n

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Data by YCharts<\/figcaption><\/figure>\n

Since 1990, HEI shares have returned 22% per year, which is truly mind-blowing. Please note that the only difference between HEI and HEI.A is voting rights. Common stock has one vote per share. Class A shares have 1\/10th vote per share.<\/p>\n

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HEICO Corp.<\/span><\/p>\n<\/figcaption><\/figure>\n

Having said that, HEICO has two main business segments.<\/p>\n

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  1. \n

    Flight Support Group (“FSG”):<\/strong> Accounting for the majority of net sales, the FSG specializes in designing, manufacturing, and distributing jet engine and aircraft component replacement parts. This segment also provides repair, overhaul, and distribution services to domestic and foreign commercial air carriers, military and business aircraft operators, and others.<\/p>\n<\/li>\n

  2. \n

    Electronic Technologies Group (“ETG”):<\/strong> This segment designs, manufactures, and sells various electronic, data, microwave, and electro-optical products. The customer base includes US and foreign military agencies, prime defense contractors, commercial and defense satellite manufacturers, and spacecraft manufacturers.<\/p>\n<\/li>\n<\/ol>\n

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    HEICO Corp.<\/span><\/p>\n<\/figcaption><\/figure>\n

    Moreover, it has a strategy based on both organic and acquired growth. Over the past 30 years, the company has completed almost 100 acquisitions, enhancing its product offerings, technologies, and customer base. This has fueled annual revenue growth of 15% between 1990 and 2022.<\/p>\n

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    HEICO Corp.<\/span><\/p>\n<\/figcaption><\/figure>\n

    Now, it looks like this growth streak might continue. <\/span><\/p>\n

    HEICO Is, Once Again, Accelerating<\/span><\/p>\n

    As one can imagine, the fact that backlogs of OEMs like Boeing are filled while supply chain bottlenecks are easing offers tremendous opportunities for HEI and its peers.<\/p>\n

    Year-to-date, HEI shares are up 13%. The stock price is now 33% above its 52-week low, which is a truly impressive performance.<\/p>\n

    For example, HEICO achieved record results in the second quarter of its fiscal year 2023. This was driven primarily by record net sales within the Flight Support Group.<\/p>\n

    The company saw a continued rebound in demand for commercial aerospace products and services and contributions from recent acquisitions.<\/p>\n