CAE Inc. (CAE) is a Canada-based manufacturer of simulation technologies, modeling technologies, and training services to airlines, aircraft manufacturers, healthcare practitioners, and defense and security forces. The company is scheduled to release its fiscal 2024 second quarter financial results on Tuesday, November 14, 2023.

Analysts expect the company’s revenue for the quarter (ended September 2023) to increase 11.1% year-over-year to $775.05 million. The consensus EPS estimate of $0.14 for the same quarter is flat compared to the year-ago value.

CAE also reported solid financial results in the first quarter of fiscal year 2024. The company posted revenue of $1.05 billion, an increase of 13% year-over-year. Its adjusted EPS was $0.24, compared to $0.06 a year ago. Also, its adjusted backlog grew 11.5% from the prior year’s quarter to $11.18 billion.

“We are off to a strong start to the fiscal year with first quarter results driven by double-digit year-over-year growth in Civil, continued strengthening and transformation in Defense, and increased profitability in Healthcare. We also further bolstered our financial position and are on track to meet our leverage target by mid fiscal year,” said Marc Parent, CAE’s President and CEO.

In addition, the company continues to address a significant share of its civil aviation customers’ training and operational needs, as evidenced by its long-term training services agreements, which include almost every major U.S. airline.

CAE further makes remarkable progress in transforming Defense as indicated by its latest strategic program wins, like the selection of SkyAlyne as the preferred bidder for the Future Aircrew Training program to offer next-generation pilot and aircrew training for the Royal Canadian Air Force. This marks a multi-billion-dollar generational training opportunity for the company.

“As we look to the period ahead, we continue to be highly encouraged by the secular tailwinds in all segments and the growth we expect by harnessing our global market and technology leadership, and the power of One CAE,” Marc Parent added.

Shares of CAE have gained 12.9% year-to-date to close the last trading session at $21.83. Also, the stock has gained 2.3% over the past year.

Here are the factors that could affect CAE’s performance in the near term:

Positive Recent Developments

On October 24, CAE announced the sale of its Healthcare business to Madison Industries to an enterprise value of C$311 million ($225.35 million).

“This decision to streamline our portfolio better positions CAE to efficiently allocate capital and resources to secure the many attractive growth opportunities on the horizon in our much larger, core simulation and training markets,” said Marc Parent, President and CEO of CAE.

On September 13, CAE signed a Memorandum of Understanding (MOU) with Textron Aviation Defense LLC that expands efforts to support defense force preparation, integrate next-generation aircraft and develop advanced capabilities.

The partnership between CAE and Textron Aviation Defense addresses the increasing need for military-led and industry-enabled flight training services that employ emerging technology and innovative instructional approaches to enhance the next-generation T-6 training ecosystem.

Robust Financials

For the fiscal 2024 first quarter that ended June 30, 2023, CAE’s revenue increased 13% year-over-year to $1.05 billion, while its gross profit rose 31.3% from the year-ago value to $305.90 million. Its operating income grew 230.2% year-over-year to $130.10 million. The company’s adjusted net income rose 336.4% from the prior year’s quarter to $76.80 million.

In addition, the company’s net income per share was $0.26, an increase of 300% year-over-year. Its net debt-to-adjusted EBITDA of 3.22x compared to 3.41x at the end of the preceding quarter. Its adjusted order intake was $1.01 billion for a record $11.18 billion adjusted backlog during the quarter.

Solid Historical Growth

Over the past three years, CAE’s revenue and EBITDA grew at CAGRs of 8.9% and 8.6%, respectively. Its EBIT rose at a CAGR of 11% over the same time frame. Also, the company’s net income increased at a CAGR of 27.1% over the same period, while its EPS grew at a 20.1% CAGR.

Additionally, the company’s tangible book value grew at a CAGR of 22.7% over the same time frame, while its total assets increased at a 10.7% CAGR.

Favorable Analyst Estimates

Analysts expect CAE’s revenue for the fiscal year (ending March 2024) to come in at $3.37 billion, indicating an increase of 6.2% year-over-year. The consensus EPS estimate of $0.86 for the ongoing year reflects a 30.3% year-over-year improvement.

For the fiscal year 2025, the company’s revenue and EPS are expected to grow 6.9% and 30.2% year-over-year to $3.60 billion and $1.12, respectively. Further, its EPS is estimated to increase by 12.3% per annum over the next five years.

Robust Profitability

CAE’s trailing-12-month EBIT margin of 12.54% is 27.9% higher than the 9.81% industry average. Moreover, the stock’s trailing-12-month EBITDA margin and net income margin of 18.12% and 6.62% favorably compared to the respective industry averages of 13.74% and 6.05%.

POWR Ratings Reflect Promise

CAE’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CAE has an A grade for Growth, consistent with its impressive historical growth and solid financial performance in the last reported quarter.

CAE is ranked #12 out of 71 stocks in the Air/Defense Services industry.

Beyond what I have stated above, we have also given CAE grades for Stability, Sentiment, Value, Momentum, and Quality. Get access to all the CAE Ratings here.

Bottom Line

CAE reported strong first-quarter financial results, driven by double-digit year-over-year growth in Civil, continued strengthening in Defense, and increased profitability in Healthcare. In addition, the company is expected to witness significant growth in the upcoming quarters due to tailwinds in all its segments and its global market and technology leadership.

Given its solid financials, improving profitability, and bright growth outlook, CAE could be an ideal buy now.

How Does CAE Inc. (CAE) Stack Up Against Its Peers?

While CAE has an overall POWR Rating of B, investors could also check out these other stocks within the Air/Defense Services industry with A (Strong Buy) rating: Textron Inc. (TXT), Huntington Ingalls Industries Inc. (HII), and Cadre Holdings, Inc. (CDRE).

For exploring more A and B-rated defense stocks, click here.

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CAE shares were trading at $21.99 per share on Monday morning, up $0.16 (+0.73%). Year-to-date, CAE has gained 13.70%, versus a 16.21% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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