Core Portfolio Insight: HEICO (HEI.A)

Core Portfolio Insight: HEICO (HEI.A)

September 16, 2022
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HEICO continues its consistent execution since GPM provided our initial insight into the company last August. The Flight Support Group (FSG) is on its fifth consecutive quarter of 20%+ organic growth. In Q3 2022, FSG's sales were $330 million, exceeding pre-covid levels for the first time. While the 20%+ organic growth is unlikely to continue forever, there are still areas within FSG that must catch up, in widebody aircraft, for example. Over in the Electronic Technology Group (ETG), sales are steady, with low-to-mid-single digits organic growth. [1]

(source: GPM's public viz; company filings)

During the Q3 2022 earnings conference call, management noted that market prices look better when considering mergers & acquisitions. HEICO typically competes with private equity firms for deals, and now with higher interest rates, private equity is unable to pay as high of prices as before, allowing HEICO the chance to participate in deals at reasonable prices. Since July, HEICO announced the acquisitions of Exxelia (HEICO's largest acquisition ever), Accurate Metal Machining, Sensor Systems, Charter Engineering, and Ironwood Electronics. [2] [3] [4] [5] [6]

HEICO's management described its acquisition criteria at the Gabelli conference in September, stating, "we avoid most acquisitions actually. We avoid most business. What we don't want are fast-moving technologies where we've got kind of consumer product like businesses. We're not taking things, as a rule of thumb, that go in cell phones. We've got a lot of opportunity to buy Apple suppliers and Samsung suppliers that had this great hockey stick, and we've stayed away from that. We don't want to buy from serial entrepreneurs. So, somebody who's on business #3 and wants to sell that or #4 to us and talks about how great their businesses were, we don't want that. We want somebody who loves the business and is really excited about it." 

GPM likes that HEICO's management does not chase growth and invests in products that have consistent, long term cash flows. HEICO's businesses are in aerospace, defense, and electronic industries that are slower moving, as opposed to the "bleeding edge". Its products can be found in airplanes and other defense equipment that are used and deployed for decades. On top of this, every HEICO team member in the U.S. is a HEICO shareholder, which helps align the long term goals.

Sources:

[1] HEICO Q3 2022 Earnings

[2] HEICO acquired ~80% of capital stock of Ironwood Electronics

[3] HEICO acquires Charter Engineering, Inc.

[4] HEICO Corp. acquires aircraft antenna company Sensor Systems

[5] HEICO announces its Electronic Technologies Group entered a put option agreement to acquire Exxelia International for €453M in cash

[6] HEICO acquires Accurate Metal Machining

Disclosure:

This blog post or document contains information about a company that is owned in portfolios managed by GPM and is intended exclusively for GPM clients. While this company is owned in a broad cross section of GPM managed portfolios, it should not be implied or assumed that every client portfolio or account currently holds this stock. Data presented is from sources we believe to be reliable. The opinions and commentary presented reflect our best judgement at this time, and may include “forward-looking statements”, all of which are subject to change at any time without obligation to update them. Shares of this stock are NOT held in accounts that invest exclusively in ETFs or mutual funds. Actual future results may be different than our expectations. There can be no assurance that your investment objectives will be realized. Investing involves risk and losses can occur.