Why Keybanc Upgraded Heico Corp (HEI)

NEW YORK (TheStreet) -- Keybanc has upgraded aircraft parts manufacturer Heico Corp (HEI) to "buy" from "hold" with a $68 price target, noting the commercial aerospace aftermarket is seeing accelerated growth. 

TheStreet Ratings team rates HEICO CORP as a Buy with a ratings score of B+. The team has this to say about their recommendation:

"We rate HEICO CORP (HEI) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 7.7%. Since the same quarter one year prior, revenues rose by 18.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.62, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.07, which illustrates the ability to avoid short-term cash problems.
  • HEICO CORP has improved earnings per share by 22.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HEICO CORP increased its bottom line by earning $1.52 versus $1.28 in the prior year. This year, the market expects an improvement in earnings ($1.71 versus $1.52).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Aerospace & Defense industry average. The net income increased by 25.2% when compared to the same quarter one year prior, rising from $23.79 million to $29.79 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, HEICO CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

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