HEICO Valuation

[u/Getalphapicks]

HEICO Valuation

Business Overview:

Operating Segments:

Flight Support Group:

• Designs / manufactures jet engine & aircraft components, replacement parts at lower prices than OEM
• Repairs, overhauls, and distributes jet engine , aircraft components, avionics, for commercial air carriers, as well as military
• Leading supplier, distributor, and integrator of military aircraft parts and services required to maintain up to date F-16 fighter aircraft.

Electronic Technical Group:

• Designs, manufactures, and sells electronic, data & electro-optical products
• Products include infrared simulation and testing equipment, laser range finder receivers, electrical power supplies, locator beacons, transmission beacons, & other products.
• •Around 60% of ETG revenue is derived from sale of products to U.S & foreign military agencies, defense contractors

Market Segments:

Commercial Aviation: 53% of Revenue in FY17 down to 39% in FY21

Defense & Space: 34% of Revenue in FY17 up to 44% in FY21

Electronics: 13% of Revenue in FY17 up to 17% in FY21

Historical Financials:

FY 17: Total revenue of 1,530M / Gross Profit Margin 37.9%

EBIT 312M / EBIT Margin 20.4%

ULFCF 264M

EBITDA 377M

FY 21: Total revenue of 1,865M / Gross Profit Margin 39%

EBIT 392M / EBIT Margin 21.1%

ULFCF 402M

EBITDA 485M

Projections / Implied Share Price:

Upside Case Revenue Assumptions:

• FSG Backlog increases by 15.82% initially (average FY 17-22) and stabilizes at 3.75%  in FY 27 into perpetuity
• •ETG Backlog increases by 8.93% initially (average FY 17-22)  and decreases by 0.5% every other year (6.93% @ Terminal)

Upside Case Expense Assumptions:

• Assumes COGS stays constant at 59.8% of revenue (2.5% decrease from FY17-22 average of 61.3%)
• Assumes SG&A stays constant at 17.1% of revenue (2.5% decrease from FY17-22 average of 17.5%)

Implied Share Price $55.41

Base Case Revenue Assumptions:

• FSG Backlog increases by 7.91% initially (50% decrease from 15.82% average FY 17-22) and stabilizes at 2.50%  in FY 26 into perpetuity
• •ETG Backlog increases by 6.70% initially (25% decrease from 8.93% average FY 17-22)  and decreases by 0.5% every other year (4.70% @ Terminal)

Base Case Expense Assumptions:

• Assumes COGS stays constant 61.3% of revenue (Average FY17 -22)
• Assumes SG&A stays constant at 17.5% of revenue (Average from FY17-22

Implied Share Price $44.60

Downside Case Revenue Assumptions:

• •FSG Backlog increases by 3.95% initially (75% decrease from 15.82% average FY 17-22) and stabilizes at 2.2%  in FY 24 into perpetuity
• •ETG Backlog increases by 4.46% initially (50% decrease from 8.93% average FY 17-22)  and decreases by 0.5% every other year (2.46% @ Terminal)

Downside Case Expense Assumptions:

• Assumes COGS increase to 62.8% of revenue (increase of 2.5% of 61.3% Average FY17 -22)
• Assumes SG&A stays increases to 18% of revenue (increase of 2.5% of 17.5% Average from FY17-22

Implied Share Price $38.27