Unlock: CAE Inc (CAE) – Bull Market in Pilot Training Program
It pays to do fundamental research. There are no options in CAE. We bought the stock at $14.80 on March 27. Now at $17.70, up nearly +20%. Stealth rally with steady uptrend continues. To learn more about our approach and how you can become a successful trader, sign up for 4 week trial and test drive live chat room with some of the best traders: SUBSCRIBE
March 27, 2017
CAE Inc (CAE) – No options in this stock but I really like the technical picture and fundamental outlook. First time covering this.
Based in Quebec, Canada, CAE is $3.9 billion company with one of a kind business model. It provides pilot training for the civil aviation, defense and security, and healthcare markets. The Company provides training solutions for flight, cabin, maintenance and ground personnel in commercial, business and helicopter aviation, a range of flight simulation training devices, as well as ab initio pilot training and crew sourcing services. Highlights from February 14 earnings release (in Canadian dollars):
– Q3 EPS $0.25 vs. $0.21 estimate, beat
– Q3 Revenues $682.7M vs. $616.3M estimate, beat
– Q3 Civil Revenue Growth 16.4% YoY
– Q3 Civil EBITDA Growth +23.2% YoY
– Q3 Bookings +32.5% YoY (huge for future revenue growth)
– Total Backlog +13.1% YoY
Q3 Defense orders in single quarter first time crossed $1 billion mark, resulting in record backlog of $7.4 billion further augmenting company’s substantial base of recurring revenues. The key focus here is Civil though because it is 68% of total revenues and the pilot training program saw capacity utilization increase from 72% to 76% and operating margins improved from 16.5% to 71.3%. Just a beautiful quarter!
Current Industry Checks – That report discussed above came out on February 14. Last week, management at Analyst Meeting highlighted further strength. Three key points:
1) CAE training facility in Dallas is running at full capacity. The facility operates 44 full flight simulators (FFS) and is dedicated to pilot training for business aircraft.
2) CAE recently started a new pilot training program with JetBlue Airways that provides cadet to captain training. This is entirely new. Historically, US commercial airline pilots received pilot training from the military. Due to the demand for commercial pilots, CAE and JetBlue created a program that could take a cadet through the training program over the course of 18-24 months. JetBlue provides candidates with conditional job offers based on program performance and may provide some tuition support.
3) Long term vision, management highlighted there is shortage of 18,000 pilots in the US in next 3 years and that’s just from the three majors (UAL, AAL, DAL).
These commentaries point to continued strength while stock has pulled back to support providing new entry.
