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It has been about a month since the last earnings report for Heico (HEI). Shares have added about 11.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Heico due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
HEICO Corp. Q2 Earnings Top Estimates, Guidance Raised
HEICO Corporation reported second-quarter fiscal 2019 earnings of 60 cents per share, surpassing the Zacks Consensus Estimate of 49 cents. The bottom line rose 36.4% from the prior-year quarter’s figure of 44 cents. The year-over-year improvement was driven by higher sales in the reported quarter and a 30% increase in operating income.
Quarterly net sales of $515.6 million outpaced the Zacks Consensus Estimate of $478 million by 7.9%. The top line also increased 19.7% from the year-ago quarter’s $430.6 million. The upside can be primarily attributed to the company’s organic growth and favorable impact from the company’s profitable acquisitions.
HEICO Corp’s total costs and expenses increased 17% year over year to $396.5 million in the reported quarter. The uptick was due to higher cost of sales, and increased selling, general and administrative expenses.
The company’s consolidated operating margin improved to 23.1% in the second quarter of fiscal 2019, up from 21.3% in the second quarter of fiscal 2018.
Flight Support Group: Net sales were up 15.1% year over year to $308.3 million, attributable to strong organic growth of 15% along with increased demand and new product offerings within the company’s aftermarket replacement parts and specialty products categories.
Operating income improved 20.7% year over year to $62.2 million, courtesy of net sales growth and improved gross profit margin, mainly reflecting a more favorable product mix within the specialty products category.
Segmental operating margin increased to 20.2% in the second quarter of fiscal 2019, up from 19.2% in the second quarter of fiscal 2018.
Electronic Technologies Group: Net sales rose 27.1% year over year to $214.5 million, majorly owing to increased demand for certain defense, aerospace and space products.
The segment’s operating margin improved to 31.4% in the second quarter of fiscal 2019, up from 28.5% in the second quarter of fiscal 2018.
Operating income increased 39.9% year over year to $67.4 million, largely on account of quarterly net sales growth, improved gross profit margin, and a favorable product mix for certain defense and aerospace products.
As of Apr 30, 2019, cash and cash equivalents summed $64.1 million compared with $59.6 million as of Oct 31, 2018.
Long-term debt (net of current maturities) totaled $555.5 million as of Apr 30, 2019, up from $531.6 million as of Oct 31, 2018.
For the six months ended Apr 30, 2019, cash provided by operating activities was $178.3 million compared with $103.4 million in the year ago period.
Fiscal 2019 Guidance
HEICO Corp estimates fiscal 2019 net sales to grow 12-13%, up from its prior growth estimates of 9-11%.
The company also anticipates net income growth of 17-18% for the fiscal, up from the prior growth estimates of 11-13%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Heico has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Heico has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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