CAE Inc.—and its earnings—continues to benefit from air industry trends even as it diversifies beyond flight simulator sales.

The growing need for new airline pilots, particularly in Asia, will spur strong demand for CAE’s flight simulators and pilot-training services. Rising revenue from its military clients also helps cut its reliance on simulator sales to cyclical airlines. In addition, CAE is now applying its simulator expertise to the fast-growing field of medical-training devices.

The stock has gained 9% since the start of 2016. We expect it to move much higher in the next few years.

CAE INC. (Toronto symbol CAE; www.cae.com) began operating in 1947 as Canadian Aviation Electronics Ltd. It originally made ground-communication equipment and antennas for the Royal Canadian Air Force.

In 1952, the company began making flight simulators for air force pilots. It’s now the world’s leading maker of flight simulators for commercial and military aircraft. CAE currently controls 70% of the global flight simulator market.

To cut its reliance on sales of those units, which rise and fall with the overall economy, CAE began instructing airline and military pilots in 2001. It now operates around 65 pilot-training centres in 30 countries.

Selling simulators and training services to commercial airlines accounts for about 55% of the company’s total revenue. Another 40% comes from providing simulators and instruction for military clients, mainly in the U.S. and Europe.

The remaining 5% of CAE’s revenue comes from its health care division, which makes simulators and mannequins for teaching paramedics, nurses and medical students. These devices help reduce medical errors and lower insurance costs.

The company’s revenue rose 38.0%, from $1.8 billion in 2012 to $2.5 billion in 2016 (fiscal years end March 31). That’s partly due to its $279.3 million purchase of Oxford Aviation Academy in 2012. It operates flight schools in the U.K., the U.S., Europe and Asia.

CAE’s earnings rose from $0.70 a share (or a total of $182.0 million) in 2012 to $0.74 a share (or $194.3 million) in 2013. Earnings dipped to $0.73 a share (or $191.1 million) in 2014, but rebounded to $0.76 a share (or $204.1 million) in 2015, and to $0.86 a share (or $230.5 million) in 2016.

Part of CAE’s gain in earnings comes from a restructuring plan. This includes cutting 4% of its workforce. It’s also making better use of its existing facilities: in the latest fiscal year, the utilization rate of its civilian training operations (training hours sold divided by total hours available) improved to 71% from 68% in 2015.

Growth Stocks: Restructuring set to $15m annually

The company expects to complete its restructuring by September 2016. In all, these moves should save it $15 million to $20 million a year.

CAE also continues to benefit as airlines replace their aging aircraft with new models. That has spurred demand for new simulators: it sold a record 53 simulators in fiscal 2016, up from 41 in 2015.

As a result, revenue at CAE’s civilian division rose 10.4% in 2016. This business ended the year with an order backlog of $3.1 billion, up 6.0% from 2015.

Revenue at the military division gained 13.1% in 2016. That’s partly because the company paid $19.8 million in September 2015 for Bombardier’s military training business. The operation trains combat pilots for the Royal Canadian Air Force, as well as the fighter pilots of other NATO countries.

The outlook for CAE’s military operations is improving as governments are now starting to spend more on defense due to the rise of ISIS and other terrorist threats. As well, simulator training costs much less than training pilots in real aircraft.

The order backlog for CAE’s military division jumped 34.2% in fiscal 2016, to $3.3 billion.

Revenue for the company’s healthcare business rose 20.3% in 2016, to $113.4 million. This unit benefited from new partnerships with U.S. medical schools and the launch of several products.

The company spent $87.6 million (or 3.5% of revenue) on research in fiscal 2016. That’s up 36.7% from $64.1 million (or 2.9% of revenue) in 2015. These figures factor out the tax credits it receives from the Canadian and Quebec governments.

The company’s strong balance sheet lets it invest in its businesses and make acquisitions.

As of March 31, 2016, CAE’s long-term debt was $1.15 billion, or a manageable 25% of its market cap. It also held cash and investments of $485.6 million, or $1.80 a share.

The company gets 90% of its revenue from customers outside of Canada, so the lower Canadian dollar will help lift its fiscal 2017 earnings to $0.93 a share. The stock trades at 18.3 times that forecast.

That’s a reasonable multiple in light of CAE’s dominant market share. As well, 60% of its revenue comes from recurring service contracts. That also cuts its reliance on new simulator sales.

The company’s steady earnings growth has also let it increase its dividend each year since 2008. The current annual rate of $0.30 a share yields 1.8%.

Recommendation in The Successful Investor: BUY

For our advice on how to profit most with the least risk in growth stocks, read 7 tips to cut your growth investing strategy risk.

For our recent report on a Canadian growth stock that’s ready to step in as Germany cuts back on nuclear power, read Northland Power limits risk with government supports.