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Aerospace and defense company HEICO (NSYE:HEI) missed Wall Street’s revenue expectations in Q3 CY2024, but sales rose 8.2% year on year to $1.01 billion. Its GAAP profit of $0.99 per share was 1.3% above analysts’ consensus estimates.

Is now the time to buy HEICO? Find out in our full research report.

HEICO (HEI) Q3 CY2024 Highlights:

• Revenue: $1.01 billion vs analyst estimates of $1.03 billion (8.2% year-on-year growth, 1.7% miss)

• Adjusted EPS: $0.99 vs analyst estimates of $0.98 (1.3% beat)

• Adjusted EBITDA: $263.3 million vs analyst estimates of $272.8 million (26% margin, 3.5% miss)

• Operating Margin: 21.6%, up from 20.2% in the same quarter last year

• Free Cash Flow Margin: 20.3%, up from 14.2% in the same quarter last year

• Market Capitalization: $31.2 billion

Company Overview

Founded in 1957, HEICO (NYSE:HEI) manufactures and services aerospace and electronic components for commercial aviation, defense, space, and other industries.

Aerospace

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, HEICO’s sales grew at an excellent 13.4% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. HEICO’s annualized revenue growth of 32.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, HEICO’s revenue grew by 8.2% year on year to $1.01 billion, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 10.9% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is admirable and implies the market sees success for its products and services.

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Operating Margin

HEICO has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 21.4%.

Looking at the trend in its profitability, HEICO’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years, highlighting the long-term consistency of its business.

In Q3, HEICO generated an operating profit margin of 21.6%, up 1.3 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

HEICO’s EPS grew at a decent 8.9% compounded annual growth rate over the last five years. However, this performance was lower than its 13.4% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Diving into HEICO’s quality of earnings can give us a better understanding of its performance. A five-year view shows HEICO has diluted its shareholders, growing its share count by 2.1%. This has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For HEICO, its two-year annual EPS growth of 19.8% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, HEICO reported EPS at $0.99, up from $0.74 in the same quarter last year. This print beat analysts’ estimates by 1.3%. Over the next 12 months, Wall Street expects HEICO’s full-year EPS of $3.66 to grow 17.9%.

Key Takeaways from HEICO’s Q3 Results

We struggled to find many resounding positives in these results. Its revenue missed and its adjusted operating income fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 5% to $246.90 immediately following the results.

HEICO underperformed this quarter, but does that create an opportunity to invest right now? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.