Heico is Friday's IBD Stock Of The Day after the aerospace supplier, which got two votes of confidence from Warren Buffett's Berkshire Hathaway last year, announced another acquisition that it expects to boost earnings. HEI stock is close to forming a new buy point after catching a big updraft following its fiscal Q2 earnings report.
On Thursday, Heico said it acquired Gables Engineering, a maker of advanced avionics controls including touch screen cockpit displays for the Boeing 737 MAX. The purchase, for an undisclosed amount of cash, should "be accretive to earnings within a year following the purchase," Heico said.
Heico has a superlative 99 IBD Composite Rating out of a possible 99, according to IBD Stock Checkup. The single rating combines both fundamental and technical factors.
Heico M&A Back In Gear
Heico finalized its largest acquisition to date in August 2023, buying aftermarket aircraft parts supplier Wencor for $1.9 billion in cash and $150 million in stock. That raised its net debt-to-EBITDA leverage ratio at the time to 3.0, well above its 2.0 target, according to William Blair analyst Louie DiPalma.
That acquisition "continues to exceed expectations," DiPalma wrote in a May 28 note following the fiscal Q2 report. "Heico and Wencor have been able to leverage each other's customer relationships to drive sales."
Meanwhile, net leverage has fallen back to 1.86 — below target — even as Heico ramps up M&A activity.
In April, Heico said it made its fourth acquisition in the past six months, buying Rosen Aviation, which designs and manufactures in-flight entertainment products.
In a June 23 report, Stifel resumed coverage of Heico with a buy rating and 352 price target, touting it as a long-term winner as its parts business throws off cash to be deployed via M&A. A write-up on TheFly investment site said the buy rating reflected Heico's successful acquisition track record, as well as strength in commercial aerospace and defense.
Heico's flight support group designs, manufactures and repairs aircraft and engine replacement parts for commercial and military customers. The electronic technologies group makes power converters and accessories, microwave switches and lasers used in the aviation, electronics, medical and telecommunications industries.
Warren Buffett Doubled Down On HEI
Buffett's Berkshire Hathaway opened a position in Heico in the second quarter of 2024, buying 1.04 million shares in the company. In Q3 of last year, Buffett added another 5,445 shares of HEI.
Those purchases have come amid a 10-quarter streak in which Buffett has been a net seller of stock. Berkshire Hathaway's cash hoard hit a record $347 billion at the end of the first quarter.
Buffett has announced that he'll step down as CEO at the end of 2025. There's speculation that Berkshire could make a big move before then, launching a bid for CSX to form a coast-to-coast railroad network.
HEI
HEI stock rose 0.7% to 322.58 in Friday afternoon stock market action. Heico stock is flying 18% above the cup-with-handle buy point it last cleared on May 27, ahead of earnings. The stock is holding above its 21-day exponential average amid low turbulence. One more week of sideways movement will finish the formation of a flat base, with a new 238.63 buy point.
BRKB stock rose 0.6% on Friday, gaining ground for the seventh session of the past eight. Berkshire Hathaway went into a steady slide after closing at a 52-week high on May 2 — right before Warren Buffett announced that he would step down as CEO at the end of 2025.
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