This Canadian aerospace stock continues to expand its operations—and its contracts—as it soars to higher sales and earnings.
The firm 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 $8.7 billion and expands its expertise with well-targeted research spending. It also continues to raise its dividend.
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CAE INC., $25.25, Toronto symbol CAE; www.cae.com, is the world’s largest maker of flight simulators for commercial airlines and military clients. It also makes mannequins for teaching paramedics, nurses and medical students.
In its fiscal 2019 second quarter, ended September 30, 2018, CAE’s revenue rose 20.3%, to $743.8 million from $618.2 million a year earlier. Sales of simulators and training services to airlines (53% of total revenue) gained 23.7%. As well, sales to military clients (43%) improved 17.8%, while sales of medical-simulation products (4%) rose 7.4%.
Earnings in the quarter rose 13.9%, to $60.7 million from $53.3 million. Due to fewer shares outstanding, per-share earnings improved at a slightly faster pace of 15.0%, to $0.23 from $0.20.
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.
CAE’s order backlog as of September 30, 2018, was $8.7 billion, up 23.8% from a year earlier.
The company recently acquired the Business Aircraft Training business of Bombardier Inc. (Toronto symbols BBD.A and BBD.B). It operates 12 flight simulators that train pilots to fly Bombardier’s business jets. Those simulators are already located in CAE-operated facilities in Montreal and Dallas.
CAE paid $645 million U.S. for those operations. It also paid $155 million U.S. to cover future royalty payments.
Dividend Stocks: Strong balance sheet supports key business acquisition
CAE can comfortably afford that expansion. As of September 30, 2018, it held cash of $504.3 million, or $1.89 a share. Its long-term debt of $1.2 billion is a moderate 17% of its market cap. However, it sold $550 million U.S. in new bonds in December to help pay for the Bombardier purchase.
The company’s projected earnings will likely improve from $1.23 a share in fiscal 2019 to $1.46 in 2020. The stock trades at 17.3 times the 2020 forecast. That’s a reasonable multiple, particularly as the company gets around 60% of its revenue from recurring training contracts.
With the September 2018 payment, the company raised its quarterly dividend by 11.1%, to $0.10 a share from $0.09. The new annual rate of $0.40 yields 1.5%. CAE has now raised its dividend for eight consecutive years.
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