Recent Analyst CoverageA tough stock to get into but finally opened a position yesterday. GLTA
Scotia Capital analyst Konark Gupta thinks valuations for Canadian aerospace and defence companies remain “attractive” heading into first-quarter earnings season. Mr. Gupta increased his Heroux Devtex Inc. target to $22.50 from $21 with a “sector outperform” rating. The average is $23.90.
------------------------------------------------------------------------------------------------- National Bank Financial analyst Cameron Doerksen thinks the outlook for the aerospace industry “remains positive,” which he expects will lead to a period of multiyear growth for Bombardier Inc. , CAE Inc. (CAE-T) and Hroux-Devtek Inc. (HRX-T).
In a research report released Tuesday, he reaffirmed the three companies as “top ideas” in his coverage universe.
“Demand for air travel is the primary driver for the broader commercial aerospace industry, and according to the latest numbers from IATA, global passenger traffic has fully recovered to 2019 levels for the first time with February data coming in 5.7 per cent above 2019 on 5.8 per cent higher capacity,” said Mr. Doerksen. “A recovery in global air traffic is positive for CAE’s pilot training business while also being supportive of higher aircraft production rates, which is positive for both CAE and HRX.”
“Business aircraft flying activity in both the U.S. and Europe so far this year has been roughly consistent with last year and remains well ahead of 2019 levels. On a global basis, business aviation data provider, WingX, reports that business jet flights so far this year (through March) are slightly ahead of last year (up 0.3 per cent year-over-year) and are notably up 32.2 per cent compared to the same period in 2019. Solid OEM jet backlogs support higher business jet deliveries this year and in 2025, which is particularly positive for Bombardier, but also for HRX and CAE.”
The analyst also thinks the outlook for the defence end market “remains supportive for 2024 and beyond as global military spending to address growing threats continues to increase.”
“CAE and HRX will both benefit from increased defence spending with roughly 45 per cent of CAE’s revenue being generated from its Defence & Security segment while for HRX, Defence makes up almost 70 per cent of revenue,” he noted.
Maintaining his “outperform” recommendation for shares of all three companies, Mr. Doerksen adjusted his target prices. They are now:
Hroux-Devtek Inc. to $25 from $23. Average: $23.90.
Analyst: “We maintain our Outperform rating on Hroux-Devtek ahead of fiscal Q4 results (ended March) that will be released later in May. Although some challenges remain in the aerospace supply chain, HRX’s Q3 results showed a solid improvement in throughput as well as the margin benefits from re-pricing of contracts. Management indicates that it sees a continued upward trend in sales volumes and a path to margins that can exceed margins the company has generated in the past (past normalized EBITDA margin range of 15-16 per cent). With demand in both the Defence and Civil segments remaining strong over a multiyear period, we see a sustained run of revenue growth and margin expansion ahead for the company.”