Here's Why Shares of Heico Climbed 11.2% in April

What happened

Aerospace component manufacturer Heico (NYSE: HEI) had a relatively quiet April, with no earnings release or acquisitions in the month to generate excitement. Yet the company's shares still traded up 11.2%, according to data provided by S&P Global Market Intelligence, and seemed to react positively to the results posted by other aerospace vendors that suggested the overall sector is holding up strongly.

So what

Heico is an aerospace roll-up with a long history of outperformance. Since current management took over in 1990, Heico has delivered compounded annual sales growth of 16% and net income growth of 19%. That's come from strong operations and from being a prolific acquirer, having closed more than 70 deals to add a range of certified replacement parts for commercial and defense platforms.

Two planes crossing overhead.

Image source: Getty Images.

The company's shares had a strong showing in February after it reported its fiscal first quarter results, but investors had been somewhat cautious about aerospace companies headed into April due to fears over the health of the global economy, and uncertainty about how Boeing's 737 MAX issues might weigh on the sector.

Solid results and optimistic commentary by large aerospace manufacturers including United Technologies  and Honeywell went a long way toward putting the market at ease, and rippled through the sector, leading to gains in companies like Heico that didn't report.

Now what

Heico is a well-run company with a proven playbook of acquiring niche product lines or companies and driving efficiencies and margins higher. The company's exposure to the aftermarket, or used parts, business should also help it to hold up better in the event the aerospace cycle eventually turns south.

However, investors pay up for that expertise. Heico today has an enterprise value that's 31 times trailing-12-month EBITDA, considerably higher than similarly focused TransDigm's 19 times multiple. Heico is so well run that it could continue to drift higher in the months to come, but absent a significant catalyst, I'd be surprised to see it have many more months of double-figure gains similar to April's.

10 stocks we like better than Heico
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Heico wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Lou Whiteman owns shares of TransDigm Group. The Motley Fool owns shares of and recommends TransDigm Group. The Motley Fool recommends Heico. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More