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Shares of Heico Corporation (NYSE:HEI) were upgraded to Buy from Hold, with the price target raised to $180 from $160 by Jefferies on Monday.
In a note to investors, an analyst declared that “when Fed Funds slows, Heico goes.” In addition, she said the upgrade reflects 11% organic growth in FY23E with an upside to Commercial AM (41% of sales) from an expanding addressable fleet.
“We est. FY22 sales rise 18% y-o-y (+11% organic) w/ a partial recovery in FSG (56% of FY22 sales). We raise our FY23 EPS est by 9% with sales up 23% (11% organic) driven by FSG. M&A adds 7-pts in FY22 and 13-pts in FY23 (vs 5yr avg of 5-pts). We estimate FY23 EPS of $3.10, above cons $3.02, before accounting for upside from commercial AM,” she explained further.
The analyst said the aerospace and electronics company outperforms in periods of high organic and inorganic growth.
“On avg in the past 5 years, HEI has reported 5pts of M&A and 2pts of organic growth. In FY19, a period w/ 12pts of M&A and 4pts of organic growth, shares returned 64% vs 5-yr avg of 36%. In periods of rising rates, HEI generates 11pts from M&A vs avg 9pts,” the analyst added.
She concluded that it expects Heico’s EBIT growth to outperform, while its EPS growth supports the valuation.
