Intrinsic value of Heico Corporation - HEI

Previous Close

$126.17

  Intrinsic Value

$66.02

stock screener

  Rating & Target

sell

-48%

Previous close

$126.17

 
Intrinsic value

$66.02

 
Up/down potential

-48%

 
Rating

sell

We calculate the intrinsic value of HEI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 16.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  15.30
  14.27
  13.34
  12.51
  11.76
  11.08
  10.47
  9.93
  9.43
  8.99
  8.59
  8.23
  7.91
  7.62
  7.36
  7.12
  6.91
  6.72
  6.55
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
Revenue, $m
  2,050
  2,343
  2,655
  2,987
  3,339
  3,708
  4,097
  4,504
  4,928
  5,372
  5,833
  6,313
  6,813
  7,331
  7,871
  8,431
  9,014
  9,619
  10,249
  10,904
  11,586
  12,296
  13,035
  13,806
  14,610
  15,448
  16,323
  17,237
  18,192
  19,190
Variable operating expenses, $m
  1,459
  1,645
  1,842
  2,053
  2,275
  2,509
  2,755
  3,012
  3,281
  3,561
  3,691
  3,995
  4,311
  4,640
  4,981
  5,336
  5,704
  6,087
  6,486
  6,900
  7,332
  7,781
  8,249
  8,737
  9,245
  9,776
  10,330
  10,908
  11,512
  12,144
Fixed operating expenses, $m
  120
  122
  125
  128
  130
  133
  136
  139
  142
  145
  149
  152
  155
  159
  162
  166
  169
  173
  177
  181
  185
  189
  193
  197
  202
  206
  211
  215
  220
  225
Total operating expenses, $m
  1,579
  1,767
  1,967
  2,181
  2,405
  2,642
  2,891
  3,151
  3,423
  3,706
  3,840
  4,147
  4,466
  4,799
  5,143
  5,502
  5,873
  6,260
  6,663
  7,081
  7,517
  7,970
  8,442
  8,934
  9,447
  9,982
  10,541
  11,123
  11,732
  12,369
Operating income, $m
  471
  576
  688
  807
  933
  1,066
  1,206
  1,352
  1,505
  1,665
  1,993
  2,166
  2,346
  2,533
  2,728
  2,930
  3,140
  3,359
  3,586
  3,823
  4,069
  4,326
  4,593
  4,872
  5,163
  5,466
  5,783
  6,114
  6,460
  6,821
EBITDA, $m
  681
  793
  912
  1,039
  1,174
  1,316
  1,464
  1,620
  1,783
  1,953
  2,130
  2,315
  2,506
  2,706
  2,913
  3,128
  3,352
  3,585
  3,827
  4,079
  4,342
  4,615
  4,900
  5,196
  5,506
  5,829
  6,167
  6,519
  6,887
  7,272
Interest expense (income), $m
  10
  29
  39
  50
  62
  75
  88
  102
  117
  133
  149
  166
  183
  202
  221
  240
  261
  282
  305
  328
  352
  377
  403
  430
  458
  487
  518
  550
  583
  618
  654
Earnings before tax, $m
  442
  537
  638
  745
  858
  978
  1,104
  1,235
  1,372
  1,516
  1,827
  1,983
  2,144
  2,313
  2,487
  2,669
  2,858
  3,054
  3,259
  3,471
  3,692
  3,923
  4,163
  4,414
  4,675
  4,948
  5,233
  5,531
  5,842
  6,167
Tax expense, $m
  119
  145
  172
  201
  232
  264
  298
  333
  371
  409
  493
  535
  579
  624
  672
  721
  772
  825
  880
  937
  997
  1,059
  1,124
  1,192
  1,262
  1,336
  1,413
  1,493
  1,577
  1,665
Net income, $m
  323
  392
  465
  544
  627
  714
  806
  902
  1,002
  1,107
  1,334
  1,447
  1,565
  1,688
  1,816
  1,948
  2,086
  2,230
  2,379
  2,534
  2,696
  2,864
  3,039
  3,222
  3,413
  3,612
  3,820
  4,037
  4,264
  4,502

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  3,060
  3,496
  3,963
  4,459
  4,983
  5,535
  6,115
  6,722
  7,356
  8,017
  8,706
  9,423
  10,168
  10,943
  11,748
  12,584
  13,453
  14,357
  15,297
  16,275
  17,292
  18,352
  19,455
  20,606
  21,805
  23,057
  24,363
  25,727
  27,152
  28,642
Adjusted assets (=assets-cash), $m
  3,060
  3,496
  3,963
  4,459
  4,983
  5,535
  6,115
  6,722
  7,356
  8,017
  8,706
  9,423
  10,168
  10,943
  11,748
  12,584
  13,453
  14,357
  15,297
  16,275
  17,292
  18,352
  19,455
  20,606
  21,805
  23,057
  24,363
  25,727
  27,152
  28,642
Revenue / Adjusted assets
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
Average production assets, $m
  1,099
  1,256
  1,423
  1,601
  1,789
  1,988
  2,196
  2,414
  2,642
  2,879
  3,126
  3,384
  3,652
  3,930
  4,219
  4,519
  4,831
  5,156
  5,493
  5,845
  6,210
  6,590
  6,987
  7,400
  7,831
  8,280
  8,749
  9,239
  9,751
  10,286
Working capital, $m
  453
  518
  587
  660
  738
  820
  905
  995
  1,089
  1,187
  1,289
  1,395
  1,506
  1,620
  1,739
  1,863
  1,992
  2,126
  2,265
  2,410
  2,560
  2,717
  2,881
  3,051
  3,229
  3,414
  3,607
  3,809
  4,020
  4,241
Total debt, $m
  725
  931
  1,152
  1,386
  1,634
  1,895
  2,170
  2,457
  2,757
  3,069
  3,395
  3,734
  4,087
  4,453
  4,834
  5,230
  5,641
  6,068
  6,513
  6,975
  7,457
  7,958
  8,480
  9,024
  9,591
  10,183
  10,801
  11,446
  12,120
  12,825
Total liabilities, $m
  1,447
  1,654
  1,874
  2,109
  2,357
  2,618
  2,892
  3,179
  3,479
  3,792
  4,118
  4,457
  4,809
  5,176
  5,557
  5,952
  6,363
  6,791
  7,235
  7,698
  8,179
  8,680
  9,202
  9,747
  10,314
  10,906
  11,524
  12,169
  12,843
  13,547
Total equity, $m
  1,612
  1,843
  2,088
  2,350
  2,626
  2,917
  3,222
  3,542
  3,877
  4,225
  4,588
  4,966
  5,358
  5,767
  6,191
  6,632
  7,090
  7,566
  8,062
  8,577
  9,113
  9,671
  10,253
  10,859
  11,491
  12,151
  12,839
  13,558
  14,309
  15,094
Total liabilities and equity, $m
  3,059
  3,497
  3,962
  4,459
  4,983
  5,535
  6,114
  6,721
  7,356
  8,017
  8,706
  9,423
  10,167
  10,943
  11,748
  12,584
  13,453
  14,357
  15,297
  16,275
  17,292
  18,351
  19,455
  20,606
  21,805
  23,057
  24,363
  25,727
  27,152
  28,641
Debt-to-equity ratio
  0.450
  0.510
  0.550
  0.590
  0.620
  0.650
  0.670
  0.690
  0.710
  0.730
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.800
  0.810
  0.810
  0.820
  0.820
  0.830
  0.830
  0.830
  0.840
  0.840
  0.840
  0.850
  0.850
Adjusted equity ratio
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  323
  392
  465
  544
  627
  714
  806
  902
  1,002
  1,107
  1,334
  1,447
  1,565
  1,688
  1,816
  1,948
  2,086
  2,230
  2,379
  2,534
  2,696
  2,864
  3,039
  3,222
  3,413
  3,612
  3,820
  4,037
  4,264
  4,502
Depreciation, amort., depletion, $m
  210
  217
  225
  232
  241
  249
  258
  268
  278
  288
  137
  148
  160
  172
  185
  198
  212
  226
  241
  256
  272
  289
  306
  325
  343
  363
  384
  405
  428
  451
Funds from operations, $m
  533
  609
  690
  776
  867
  963
  1,064
  1,170
  1,280
  1,395
  1,471
  1,596
  1,726
  1,861
  2,001
  2,147
  2,298
  2,456
  2,620
  2,790
  2,968
  3,153
  3,346
  3,547
  3,756
  3,975
  4,204
  4,443
  4,692
  4,953
Change in working capital, $m
  60
  65
  69
  73
  78
  82
  86
  90
  94
  98
  102
  106
  110
  115
  119
  124
  129
  134
  139
  145
  151
  157
  163
  170
  178
  185
  193
  202
  211
  221
Cash from operations, $m
  473
  544
  621
  703
  790
  881
  978
  1,080
  1,186
  1,297
  1,369
  1,490
  1,615
  1,746
  1,882
  2,023
  2,169
  2,322
  2,480
  2,646
  2,817
  2,996
  3,182
  3,376
  3,579
  3,790
  4,010
  4,241
  4,481
  4,732
Maintenance CAPEX, $m
  -42
  -48
  -55
  -62
  -70
  -78
  -87
  -96
  -106
  -116
  -126
  -137
  -148
  -160
  -172
  -185
  -198
  -212
  -226
  -241
  -256
  -272
  -289
  -306
  -325
  -343
  -363
  -384
  -405
  -428
New CAPEX, $m
  -146
  -157
  -168
  -178
  -188
  -198
  -208
  -218
  -228
  -237
  -247
  -257
  -268
  -278
  -289
  -300
  -312
  -325
  -338
  -351
  -365
  -380
  -396
  -413
  -431
  -449
  -469
  -490
  -512
  -535
Cash from investing activities, $m
  -188
  -205
  -223
  -240
  -258
  -276
  -295
  -314
  -334
  -353
  -373
  -394
  -416
  -438
  -461
  -485
  -510
  -537
  -564
  -592
  -621
  -652
  -685
  -719
  -756
  -792
  -832
  -874
  -917
  -963
Free cash flow, $m
  285
  339
  398
  462
  531
  605
  683
  765
  852
  944
  995
  1,095
  1,199
  1,307
  1,420
  1,537
  1,659
  1,785
  1,917
  2,053
  2,195
  2,343
  2,497
  2,657
  2,823
  2,997
  3,178
  3,367
  3,564
  3,770
Issuance/(repayment) of debt, $m
  192
  207
  221
  234
  248
  261
  274
  287
  300
  313
  326
  339
  352
  366
  381
  396
  411
  427
  445
  462
  481
  501
  522
  544
  567
  592
  618
  645
  674
  704
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  192
  207
  221
  234
  248
  261
  274
  287
  300
  313
  326
  339
  352
  366
  381
  396
  411
  427
  445
  462
  481
  501
  522
  544
  567
  592
  618
  645
  674
  704
Total cash flow (excl. dividends), $m
  477
  546
  619
  697
  779
  866
  957
  1,053
  1,152
  1,256
  1,321
  1,434
  1,552
  1,674
  1,801
  1,933
  2,070
  2,213
  2,361
  2,516
  2,677
  2,844
  3,019
  3,201
  3,391
  3,589
  3,796
  4,012
  4,238
  4,474
Retained Cash Flow (-), $m
  -214
  -230
  -246
  -261
  -276
  -291
  -306
  -320
  -334
  -349
  -363
  -378
  -393
  -408
  -424
  -441
  -458
  -476
  -495
  -515
  -536
  -558
  -582
  -606
  -632
  -660
  -688
  -719
  -751
  -785
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  263
  316
  373
  435
  503
  575
  651
  733
  818
  908
  958
  1,056
  1,159
  1,266
  1,377
  1,492
  1,612
  1,737
  1,866
  2,001
  2,141
  2,286
  2,437
  2,595
  2,759
  2,930
  3,108
  3,293
  3,487
  3,689
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  252
  289
  325
  359
  390
  417
  440
  458
  470
  476
  455
  451
  441
  425
  404
  379
  351
  320
  287
  254
  221
  190
  160
  132
  107
  85
  67
  51
  38
  28
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

HEICO Corporation manufactures Federal Aviation Administration (FAA)-approved jet engine and aircraft component replacement parts, other than the original equipment manufacturers (OEMs) and their subcontractors. The Company also manufactures various types of electronic equipment for the aviation, medical, telecommunications and electronics industries. It operates through two segments: Flight Support Group (FSG) and Electronic Technologies Group (ETG). The FSG segment consists of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their collective subsidiaries. The FSG segment designs and manufactures jet engine and aircraft component replacement parts. The ETG segment consists of HEICO Electronic Technologies Corp. and its subsidiaries. The ETG segment designs and produces mission-critical subcomponents for various markets, which are utilized in larger systems, including targeting, tracking, identification, testing, communications, telecom and computer systems.

FINANCIAL RATIOS  of  Heico Corporation (HEI)

Valuation Ratios
P/E Ratio 57.3
Price to Sales 7
Price to Book 9.2
Price to Tangible Book
Price to Cash Flow 38.8
Price to Free Cash Flow 42.8
Growth Rates
Sales Growth Rate 10.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16.1%
Cap. Spend. - 3 Yr. Gr. Rate 10.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 58.1%
Total Debt to Equity 58.1%
Interest Coverage 31
Management Effectiveness
Return On Assets 8.6%
Ret/ On Assets - 3 Yr. Avg. 8.6%
Return On Total Capital 11.4%
Ret/ On T. Cap. - 3 Yr. Avg. 11.8%
Return On Equity 17.5%
Return On Equity - 3 Yr. Avg. 17.6%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 37.7%
Gross Margin - 3 Yr. Avg. 37.2%
EBITDA Margin 24.5%
EBITDA Margin - 3 Yr. Avg. 23.8%
Operating Margin 20.1%
Oper. Margin - 3 Yr. Avg. 19.6%
Pre-Tax Margin 19.5%
Pre-Tax Margin - 3 Yr. Avg. 19%
Net Profit Margin 12.2%
Net Profit Margin - 3 Yr. Avg. 11.6%
Effective Tax Rate 30.2%
Eff/ Tax Rate - 3 Yr. Avg. 31.1%
Payout Ratio 7%

HEI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HEI stock intrinsic value calculation we used $1778 million for the last fiscal year's total revenue generated by Heico Corporation. The default revenue input number comes from 0001 income statement of Heico Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HEI stock valuation model: a) initial revenue growth rate of 15.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HEI is calculated based on our internal credit rating of Heico Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Heico Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HEI stock the variable cost ratio is equal to 72.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $117 million in the base year in the intrinsic value calculation for HEI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Heico Corporation.

Corporate tax rate of 27% is the nominal tax rate for Heico Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HEI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HEI are equal to 53.6%.

Life of production assets of 22.8 years is the average useful life of capital assets used in Heico Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HEI is equal to 22.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1398.251 million for Heico Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 132.997 million for Heico Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Heico Corporation at the current share price and the inputted number of shares is $16.8 billion.

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