Heico Corporation is reporting its Q3 Earnings today so I decided to do a DCF analysis to figure out its intrinsic value. You can download the excel workbook here.
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:
Historical Financials:
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%)
Projection:
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
Projection:
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
Projection:
