cae

CAE INC. $15 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 265.2 million; Market cap: $4.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.9%; TSINetwork Rating: Average; www.cae.com) is buying the military flight-training business of BOMBARDIER INC. (Toronto symbols BBD.A $3.12 and BBD.B $3.04; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $5.2 billion; Price-to-sales ratio: 0.4; Dividend suspended in February 2015; TSINetwork Rating: Average; www.bombardier.com). This business trains pilots for the Royal Canadian Air Force and other NATO countries at facilities in Moose Jaw, Saskatchewan, and Cold Lake, Alberta. CAE will pay $19.8 million when it closes the deal later this year. This a small sum for both companies, but the new operations are a nice fit with CAE’s other pilot-training businesses. After the sale, Bombardier can focus on its struggling aircraft-manufacturing business, including the upcoming launch of its new CSeries passenger jet....

CAE INC., $15.58, Toronto symbol CAE, earned $52.1 million, or $0.20 a share, in its fiscal 2015 third quarter, which ended December 31, 2014. That beat the consensus forecast of $0.19. The latest earnings are also up 14.5% from $45.5 million, or $0.17 a share, a year earlier. Overall revenue rose 11.0%, to $559.1 million from $503.9 million, also beating the consensus forecast of $554.4 million. Revenue from sales of flight simulators and pilot-training services to commercial airlines (57% of the total) rose 14.2%. That’s mainly due to higher simulator sales and the positive impact of the lower Canadian dollar (overseas customers supply 90% of CAE’s revenue)....

CANADIAN PACIFIC RAILWAY LTD., $218.78, Toronto symbol CP, has agreed to form a 50/50 joint venture with DREAM Unlimited Corp., Toronto symbol DRM. This new business—called DREAM Van Horne Properties—will redevelop several of CP’s real estate holdings, including surplus land near its rail lines in Toronto, Montreal, Edmonton and Chicago. This venture should help CP unlock some of these assets’ hidden value. Meanwhile, CP earned $460 million in the quarter ended December 31, 2014, up 36.1% from $338 million a year earlier. Earnings per share jumped 40.3%, to $2.68 from $1.91, on fewer shares outstanding. That beat the consensus estimate of $2.58....

CAE INC. $15 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 265.3 million; Market cap: $4.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.9%; TSINetwork Rating: Average; www.cae.com) is the world’s leading maker of flight simulators, which help teach airline and military pilots how to take off, land and handle a variety of emergency situations.

Since it started up in 1947, CAE has sold over 1,500 simulators to 140 airlines. It currently controls 70% of the global flight simulator market.

To cut its reliance on simulator sales, which tend to rise and fall with the overall economy, CAE began instructing pilots in 2001. It now operates around 50 pilot-training centres in over 25 countries. These facilities also train cabin crews and maintenance personnel.

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CAE INC., $14.64, Toronto symbol CAE, is our Stock of the Year for 2015. The stock has gained 3.8% since we made CAE our Stock of the Year for 2014. We feel it’s just getting started and has many years of growth ahead. That’s because the company is in a strong position to profit from several trends that are just beginning to take shape. For one, airlines will have to hire more pilots in the next few years as existing ones retire. As well, global air travel volumes should rise 5% annually for the next 20 years. Both of these developments should boost demand for new pilots and increase enrolment at CAE’s flight schools....

CAE is poised to gain from several trends that are just beginning to take shape. For one, airlines will have to hire more pilots in the next few years as existing ones retire. As well, global air travel volumes should rise 5% a year for the next 20 years. Both of these developments should boost demand for new pilots and increase enrolment at CAE’s flight schools. Meanwhile, airlines continue to replace aging planes: Boeing, Airbus and other manufacturers have orders for a record 13,600 aircraft, which will fuel demand for CAE’s pilot-training flight simulators. CAE also gains from the plunge in oil prices, because it gives airlines a lot more cash to spend on its products and services....

We looked at a wide range of stocks before settling on CAE as our #1 pick for 2015. Here are the top three runners-up. All are highly attractive buys, but we feel CAE offers a better mix of long-term potential and low risk. CANADIAN NATIONAL RAILWAY CO. $78 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 809.3 million; Market cap: $63.1 billion; Price-to-sales ratio: 5.5; Dividend yield: 1.3%; TSINetwork Rating: Above Average; www.cn.ca) has several key advantages that put it in a strong position to profit from an improving North American economy. For example, it’s the only railway that accesses all three coasts: Atlantic, Pacific and the Gulf of Mexico. As well, CN owns an exclusive line that lets it avoid major bottlenecks in the Chicago area....

FlightSafety International and CAE are the world’s two biggest aviation-training companies. CAE, $14.94, symbol CAE on Toronto, is a recommendation of The Successful Investor. While CAE is publicly traded, FlightSafety is a wholly owned subsidiary of Berkshire Hathaway, $147.64, symbol BRK.B on New York. Berkshire acquired the company in 1997 for $1.5 billion in cash and stock. In addition to training pilots, FlightSafety instructs flight attendants, dispatchers and maintenance technicians....

TIM HORTONS INC., $99.00, Toronto symbol THI, has completed its merger with U.S.-based BURGER KING WORLDWIDE INC., $35.50, New York symbol BKW.

On Monday, December 15, 2014, the combined company, called Restaurant Brands International Inc., will begin trading on the Toronto and New York exchanges under the QSR symbol.

Restaurant Brands is the world’s third-largest fast-food restaurant operator, after McDonald’s and Yum Brands, with 14,000 Burger King restaurants and 4,590 Tim Hortons outlets in 100 countries. In all, these locations have annual sales of over $23 billion U.S.

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Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage in one of our three newsletters featuring Canadian stocks - The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor.

CAE INC. (Toronto symbol CAE; www.cae.com) gets 55% of its revenue by selling flight simulators and pilot-training services to commercial airlines. Another 40% comes from simulators and training for military clients, mainly in the U.S.

CAE gets the remaining 5% of its sales by making medical-simulation products, such as mannequins, for training nurses and medical students.

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