This Canadian stock continues to strengthen its powerful niche in the global aerospace industry.
It dominates the world market for flight simulators and is training more and more of the world’s pilots. The company has a strong order backlog of $2.7 billion and expands its expertise with well-targeted research spending. Not least, it raised its dividend in 2017.
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CAE INC., $24.38, 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.
In its fiscal 2018 third quarter, ended December 31, 2017, CAE earned $117.9 million, or $0.44 a share. That’s up 69.4% from $69.6 million, or $0.26, a year earlier.
Overall revenue rose 3.2%, to $704.4 million from $682.7 million. Sales of flight simulators and pilot-training services to airlines (59% of total revenue) were flat from a year earlier, while sales to military clients (37%) improved 7.8%. Sales of medical-simulation products (4%) rose 6.9% on higher demand for ultrasound simulators.
CAE’s total order backlog (including military contracts) was $7.4 billion as of December 31, 2017. That’s equal to 2.7 years’ worth of revenue.
The company continues to spend around 5% of its revenue on research. That spending hurts its current earnings, but lets it develop the kind of new products needed to maintain its high market share for simulators and training services.
For example, CAE recently launched new simulators for the latest versions of passenger airplanes made by Airbus and Bombardier. It will install those simulators at its training facilities in Montreal, Vancouver and Mexico.
Dividend Stocks: Training centre deal increases exposure to Asia/Pacific market
The company is reorganizing its Asian operations. It recently sold its 49% stake in a Chinese pilot-training joint venture. Its partner in the business, China Southern Airlines, paid $96 million U.S. for CAE’s interest.
CAE has also completed its acquisition of AirAsia’s share of the Asian Aviation Centre of Excellence (AACE) for $100 million U.S. The deal gives CAE 100% ownership of the AACE’s three training centres and greater exposure to the Asia/Pacific flight training market.
As well, the company will sell two new flight simulators to JEJUair, South Korea’s largest low-cost carrier. It will also expand its training facility in the country and install JEJUair’s simulators there in order to train its pilots.
CAE last raised its quarterly dividend by 12.5% with the September 2017 payment; investors now receive $0.09 a share instead of $0.08. The new annual rate of $0.36 yields 1.5%. The company’s dividend has grown an average of 12.5% annually over the last 5 years.
For all of fiscal 2018, CAE will probably earn $1.06 a share. The stock trades at 22.6 times that forecast. That’s a reasonable multiple in light of the company’s high market share and research spending (about 5% of its revenue).
Recommendation in The Successful Investor: CAE is a buy.
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