Topic: Growth Stocks

Rising air travel drive short- and long-term gains for CAE Inc.

Improved sales of health care, civil and military aviation services led to a 14.3% jump in revenue for this company during the most-recent quarter.

The gains missed the consensus forecast, but the firm’s long-term outlook remains bright as rising travel volumes spur demand for new pilots.

The stock trades at 25.1 times the company’s 2020 earnings forecast.

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CAE INC., (Toronto symbol CAE; is a leading maker of flight simulators for commercial and military aircraft. It also operates pilot-training schools in over 30 countries and makes mannequins and other medical-simulators for training health professionals.

The stock fell recently after the company reported lower-than-expected quarterly results—but the stock has since rebounded.

In its fiscal 2020 fourth quarter, ended June 30, 2019, CAE’s revenue rose 14.3%, to $825.6 million from $722.0 million a year earlier. That missed the consensus forecast of $857.9 million.

Revenue at its civilian aviation division (58% of the total) gained 10.8%. That’s due to $693.8 million of new training contracts and the sale of nine flight simulators.

Revenue at the military division (39%) jumped 19.5%. That’s due to $219.5 million in new orders from the defence agencies of Canada, the U.S. and Germany.

Revenue at the health-care division (3%) improved 20.6% on higher demand for patient simulators and software.

Despite the improved revenue, a combination of rising operating and interest costs caused CAE’s earnings in the quarter to fall 8.9%, to $63.2 million from $69.4 million. Due to fewer shares outstanding, per-share earnings declined at a slower pace of 7.7%, to $0.24 from $0.26. That missed the consensus estimate of $0.28.

Growth Stocks: Strong reputation helps win new business

CAE’s long-term outlook remains bright, particularly as rising travel volumes continue to spur demand for new pilots.

The company’s strong reputation continues to help it win new contracts. It recently extended its current pilot training deal with SAS (Scandinavian Airlines) for an additional five years. As well, CAE won a new contract from the U.S. Navy to train aircrews for its UC-12 transport planes. The company has yet to reveal the value of those agreements.

CAE is up 30% in the past year, partly because aviation regulators will demand additional pilot training once the currently grounded Boeing 737 Max jetliners return to service. The stock trades at a high, but still reasonable, 25.1 times the $1.39 a share that the company will probably earn in the fiscal year ending March 31, 2020.

The company is also raising its quarterly dividend by 10.0%. Starting with the September 2019 payment, investors will receive $0.11 a share instead of $0.10.

CAE’s dividend has grown an average of 14.9% annually over the last 5 years. The new annual rate of $0.44 yields 1.3%.

Recommendation in The Successful Investor: CAE Inc. is a buy.


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