NYSE: HEI Rating: Excellent Buy Price: $46 Sell Price: $101 Current Price: $134 Heico has been a true success story since the Mendelson company took control of management in 1990. They’ve grown the business from one component part to one of the largest and most trusted replacement parts providers in the aerospace industry. They’ve also expanded the business through acquisitions into similar but ever-expanding product niches that take advantage of the company’s size and maintain the entrepreneurial spirit of a small company , which has significantly affected its
stock price in Excel. The investment record of the Mendelson family in delivering compounded growth over time can not be understated. It is one of the truly exceptional management performances of the past three decades. Today, the question that faces any investor is if the current price provides enough protection for investment. Unfortunately for me, it does not. My valuation places the company’s value at $78 per share, far below the current share price of around $135. The excess value of the stock above my value per share may be warranted. You can look at Heico as one of the best industry-specific closed-end mutual funds available, which typically trade above or below underlying value based on the perceived quality of the management team. Heico’s management team has acted as long-term investors in addition to executives, which has delivered solid returns and would deserve a premium value. Again, unfortunately, I firmly believe an investor must stay disciplined in their buying to drive long-term value creation in their portfolio, so I doubt that this stock price will ever drop to the point that I can buy it. However, I will be jumping for joy if it ever does drop my target buy price without a significant change in the underlying business. Company Description: HEICO Corporation is a manufacturer of jet engine and aircraft component replacement parts. The Company operates through two segments: Flight Support Group (FSG) and Electronic Technologies Group (ETG). The FSG segment consists of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their subsidiaries. FSG segment uses technology to design and manufacture jet engine and aircraft component replacement parts. In addition, the FSG segment repairs, overhauls and distributes jet engine and aircraft components, avionics and instruments for domestic and foreign commercial air carriers and aircraft repair companies, as well as military and business aircraft operators. The ETG segment consists of HEICO Electronic Technologies Corp. and its subsidiaries. ETG segment designs, manufactures and sells various types of electronic, data and microwave, and electro-optical products, including infrared simulation and test equipment, laser rangefinder receivers and electrical power supplies. Downside Rating: Limited The company’s discipline and strong financial performance have succeeded in building a resilient company that can withstand shocks to the system quite well. For example, the business has weathered the storm of COVID, which saw the usual predictability of their revenue streams fall dramatically due to reduced air travel. In addition, its balance sheet remains strong enough for the company to continue its MA activity while still building capacity for more acquisitions. That is an impressive feat, especially when you look at their clients’ balance sheets over the same period. Of course, the most significant risk would be the stock price when you purchase it, and since the company seems overvalued to me, discipline is essential in investing in the company. Upside Rating: Excellent The company has built a significant product portfolio that has delivered solid organic growth for a long time and has invested its cash flow spectacularly well to drive long-term value creation. In terms of upside, it’s challenging to outline specifics besides a return to normal in the airline industry. However, Heico’s extensive portfolio of subsidiaries with entrepreneurial management teams that still have significant ownership, combined with the management teams’ continued success and discipline in their MA activity, create hundreds of small potential wins that can add to solid growth over time. As a result, I am giving the company an upside rating of “Excellent.”
