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Heico (HEI) Gains From Acquisition Efforts, Import Tariff a Woe

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·3 min read
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Heico Corporation’s HEI strong acquisition strategy is boosting its customer base. Yet, higher import tariff on steel and aluminum import pose threat to this stock’s prospects.

This Zacks Rank #3 (Hold) stock delivered an earnings surprise of 13.23%, on average, in the last four quarters. The Zacks Consensus Estimate for fiscal 2021 earnings per share has moved 1.4% upward to $2.19 in the past 60 days.

Tailwinds

The company is expanding its customer base through acquisitions that are driving its performance and supplementing organic growth. In March 2021, Heico completed the acquisition of Pyramid Semiconductor, which is expected to expand its product portfolio and customer base, thereby generating a strong cash flow.

The company maintains a strong solvency position, at least for the near term. Notably, its current debt was $1 million as of Apr 30, 2021, while its cash and cash equivalents came in at $385 million. Further, its debt-to-capital ratio of 0.21 declined sequentially from 0.24, which make us optimistic about the company’s ability to meet debt obligations in the near future.

Headwinds

In January 2020, the Trump administration decided to raise tariffs on import of steel and aluminum derivatives, which increased cost and disrupted the supply chain. This, in turn, hurt the prospects of defense equipment stocks like Heico.

The ongoing government-induced travel restrictions worldwide, following the spread of the COVID-19 have affected commercial aerospace business. Consequently, the demand for the company's commercial aerospace products and services was negatively impacted. Notably, in the second quarter of fiscal 2021, Heico’s net sales suffered a decline of 0.4% year over year.

Price Performance

Heico’s shares have returned 50.6% in the past 12 months, outperforming the industry’s 45.6% growth.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks in the same industry are Teledyne Technologies TDY, Kaman Corporation KAMN and Rada Electronics Industries Limited RADA. While Teledyne sports a Zacks Rank #1 (Strong Buy), Kaman Corporation and Rada Electronics hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for 2021 earnings per share for Teledyne Technologies, Kaman Corporation and Rada Electronics has moved up 11.1%, 3.9% and 22.9%, respectively, in the past 60 days.

The return on equity of Teledyne Technologies, Kaman Corporation and Rada Electronics is 13.5%, 6.3% and 10.8% respectively.

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Zacks Investment Research