HEICO Corporation sees increased demand from niche industries

Published: 2025-07-07 02:54:21 ET HEI

Published on 07/07/2025 at 02:54

By Joshua Cooper

HEICO Corporation has posted strong Q2 numbers for 2025, clocking record net sales and operating income. The results have been driven by increased demand from niche markets of the aviation, defense, and electronics industries. Further, the company has fueled growth through opportunistic acquisitions, which remain a core part of the strategy.

HEICO Corporation was founded in 1957 and is headquartered in Hollywood, Florida. It is a technology enabled company that specializes in aerospace, industrial, defense, and electronics sectors. The company’s products are integral components for large commercial, regional, business, and military aircraft. In addition, the products find application in industrial turbines, targeting systems, missiles, and electro-optical devices.

The company operates in two distinct segments - the Flight Support Group (69% of Q2 25 net sales) and the Electronic Technologies Group (31%).

HEICO posted record net sales of $1,097.8m in Q2 25, reflecting a 15% y/y increase, supported by 19th consecutive quarters of sequential growth in Flight Support Group net sales, driven by continued commercial aerospace sales. Flight Support Group sales rose 19% to a record $767.1m, reflecting organic growth of 14% and also contributed by 2025 and 2024 acquisitions. Rise in organic sales reflect increased demand in aftermarket replacement parts, repair and overhaul parts and services. Operating income, therefore, rose to a record $248.2m in the quarter, reflecting a 19% increase, with margins improving to 22.6% from 21.9% in Q2 24.

The company reported an improvement in leverage with total debt to net income decreasing to 3.79x as of April 30, 2025, from 4.34x as of October 31, 2024, and net debt to EBITDA moderating to 1.86x from 2.06x over the same time.

In addition to organic growth, the company has followed the acquisition route to expand inorganically since its inception. The group has completed 103 acquisitions since 1990, augmenting its presence in the niche segments of aviation, defense, space, medical, telecommunications and electronics industries. HEICO’s recent acquisitions include 70% of the stock of SVM Private Limited, through subsidiary HEICO Electronic, in November 2024; acquisition of 90% of the membership interests of Millennium International, LLC, in January 2025; and acquisition of 100% of the membership interests of Rosen Aviation, LLC in April 2025.

Acquisitions, net of cash jumped 6x to $286m in 1H 25 from $46.2m in the previous corresponding period. HEICO anticipates synergy from its recent acquisitions in FY 25, while positioning itself for value accretive opportunistic acquisitions in the future. In addition, the company expects to incur capital expenditures of approximately $65m to $70m in FY 25.

HEICO reported a solid top line performance over FY 21-24, posting a revenue CAGR of 27.4% to reach $3.9bn. EBITDA rose in sync at a CAGR of 27% to $997m in FY 24, with margins contracting by 25bp to 25.9%. Net income increased at 19.1% CAGR over the same period, reaching $514m in FY 24.

The cash position of the group rose from $108m at end-FY 21 to $162m at end-FY 24, helped by a positive earnings trajectory and steady cash inflow from operations, and offset by acquisitions. However, the group’s leverage went up considerably from 12.3% at end-FY 21 to 58.2% at end-FY 24.

In comparison, TransDigm Group, a local peer, reported a revenue CAGR of 18.3% over the past three years, reaching $7.9bn in FY 24. EBITDA surged at a CAGR of 25.9% to $3.9bn in FY 24, with margins expanding by 6.9% to 49.2%.

Over the past 12 months, the company's stock has delivered solid returns of approximately 42%, reflecting a positive fundamental trajectory. In comparison, TransDigm Group’s stock delivered lower returns of about 18%.

The sharp run-up in share prices has pushed the valuation higher compared to its historical average and TransDigm Group. HEICO is currently trading at a P/E of 69x, based on the FY 25 estimated EPS of $4.6, which is higher than its 3-year historical average of 61.6x and that of TransDigm Group (44.2x).

Likewise, the company is currently trading at an EV/EBITDA multiple of 34.2x, based on the FY 25 estimated EBITDA of $1,176m, which is higher than its 3-year historical average of 30.9x and TransDigm Group’s valuation of 22.5x.

HEICO is liked by 21 analysts, with 14 having ‘Buy’ ratings and six having ‘Hold’ ratings for an average target price of $311. However, the recent rise in share prices means the target price has already been achieved, implying limited upside potential. However, any correction in prices in the near term could create a decent opportunity for investors to evaluate the stock.

The analysts’ views are further supported by an anticipated EBITDA CAGR of 12.1% over FY 24-27, reaching $1,414m, with margins of 27.9% in FY 27. In addition, analysts estimate a net profit CAGR of 17.3%, reaching $830.5m with margins of 16.3% in FY 27, with EPS expected to increase to $5.9 in FY 27 from $3.7 in FY 24. Likewise, analysts estimate EBITDA CAGR of 10.1% and net profit CAGR of 17.1% for TransDigm Group.

Overall, the company remains poised to drive organic sales growth across all product lines of the Flight Support Group and Electronic Technologies Group's space and aerospace products. In addition, sales are expected to be complemented by synergies of recent acquisitions. However, HEICO is prone to some risks, including risk of absence of synergy from acquisitions, high leverage on balance sheet, and FX volatility.

Joshua Cooper