Sometimes high expectations can come back to bite a stock.
Aerospace aftermarket parts leader Heico (ticker: HEI) recently reported its fiscal third-quarter sales and earnings, which surprisingly exceeded expectations. However, despite this positive news, the stock experienced a downturn as investors expressed their desire for even greater results.
Strong Financial Performance
Sales for the quarter reached approximately $723 million, marking a significant 27% year-over-year increase. This figure surpassed Wall Street estimates of around $702 million. Additionally, earnings per share came in at 74 cents, showcasing a notable 23% year-over-year growth. Analysts had projected earnings of 73 cents per share.
While Heico’s performance demonstrates double-digit revenue and earnings growth, it appears that investors were anticipating even more from the company this quarter. Analyst Rob Stallard from Vertical Research Partners suggests that the lofty expectations set by other aero aftermarket companies have raised the bar, resulting in some shares losing value despite surpassing second-quarter forecasts.
In premarket trading, Heico stock experienced a 5.3% decline, settling at $159. Meanwhile, both the S&P 500 and Dow Jones Industrial Average futures witnessed a modest 0.1% increase.
Stallard maintains a Buy rating on Heico shares and has set a price target of $200 for the stock.
TransDigm and Heico: High Expectations Growth Stocks
TransDigm (TDG) has proven to be one of the top performers in the market. In early August, it surpassed both sales and earnings estimates for the quarter. Surprisingly, its shares dropped by approximately 3% as a response. However, this decline should not overshadow the fact that investor expectations have risen. With more people taking flights as the world emerges from the Covid-19 pandemic, there is a positive outlook for commercial aerospace suppliers.
Heico: Another High-Expectations Growth Stock
Heico is another company that investors have high expectations for. Currently, its shares are trading at about 46 times the estimated 2024 earnings. Furthermore, Heico has managed to exceed Wall Street’s bottom-line earnings in eight of the last ten quarters. It is worth noting that three times out of those ten quarters, the shares experienced a drop the day following the strong earnings reports.
Record Quarterly Consolidated Net Sales
The management of Heico is very pleased with the latest quarter’s results. In a news release, CEO Laurans Mendelson stated, “We are very pleased to report record quarterly consolidated net sales.” This achievement can be attributed to a remarkable 12% consolidated organic growth in net sales. The continued strong demand for their commercial aerospace products and services, along with contributions from acquisitions made in 2022 and 2023, played a significant role in this success.
Earnings Conference Call
To discuss the fiscal third-quarter results, management will be hosting an earnings conference call on Tuesday morning at 9 a.m. Eastern time. This call will provide further insights into their performance and future outlook.
Positive Performance for Heico Shares
Heico shares have performed well in recent times. Year to date, these shares have seen an increase of approximately 9%. Over the past 12 months, they have also enjoyed a solid growth of about 8%.
Written by Al Root