Strong Buy on HEICO Corp.

On Jun 27, Zacks Investment Research upgraded HEICO Corp. (HEI) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

This aerospace and defense company delivered positive earnings surprises in three out of the last four quarters with an average beat of 1.15%. HEICO has witnessed an upward revision in earnings estimates on the back of strong first quarter results.

HEICO’s second quarter fiscal 2013 earnings per share came in at 44 cents, surpassing the Zacks Consensus Estimate by 10.0%. Net sales in the reported quarter were $237.7 million, reflecting an increase of 10% from the prior-year quarter.

The consistent performance and strong second quarter fiscal 2013 results have prompted the company to revise its earnings expectation upwards. Moreover, the positive outlook on the commercial airline industry will also boost HEICO’s performance. HEICO now expects net sales and net income for fiscal 2013 to grow in the bands of 8% – 10% and 11% – 13%, respectively, up from its previous estimates of 6% – 8% and 9% – 11%.

Financial flexibility has allowed HEICO to make strategic acquisitions. Since the third quarter of fiscal 2012, HEICO completed two acquisitions which boosted its results. In Jun 2013 the company completed the planned acquisition of Reinhold Industries from The Jordan Company, L.P. We expect this acquisition to be synergistic to its operations.

The cash on hand also allows the company to return more to its shareholders. On Jun 11, 2013, the company increased its semi-dividend rate by 17% to 7 cents from 6 cents per share. The five-year growth rate of HEICO is quite impressive compared to the industry rate of 7.59%.

The Zacks Consensus Estimate for 2013 increased 4.1% in the last 60 days to $1.73 per share as 6 out of 7 estimates were revised higher. This is reflected in a year-over-year projected growth rate of 13.74%. The long-term earnings growth rate of the company is presently pegged at 18.63%.

Other Stocks to Consider

Besides HEICO Corp, other operators in the industry with a favorable Zacks Rank are Astronics Corp. (ATRO), Kratos Defense & Security Solutions, Inc. (KTOS) and Alliant Techsystems Inc. (ATK). While Astronics and Kratos Defense have the comparable Zacks #1 Rank as HEICO, Alliant Techsystems carries a Zacks Rank #2 (Buy).

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