CAE INC. (Toronto symbol CAE; www.cae.com) is the world’s leading maker of flight simulators for commercial airlines, with 70% of the market. It also makes simulators for military clients. The company began training pilots for its customers in 2001; it now has over 100 flight schools in 30 countries.
CAE gets 50% of its revenue from military clients. That cuts its exposure to cyclical commercial airlines, which supply 45% of its revenue.
The remaining 5% of CAE’s revenue comes from new businesses it has developed in the past few years. For example, it now makes simulators to train paramedics and medical students. The company has also developed simulators that help mining companies train employees to operate complex drilling machines.
CAE’s revenue fell 8.2% in 2010, to $1.5 billion, because the recession cut flight simulator demand. As the global economy recovered, CAE’s revenue rose to $1.6 billion in 2011 and $1.8 billion in the fiscal year ended March 31, 2012 .
Severance and other costs pushed down its earnings to $0.56 a share (or $144.5 million) in 2010. Earnings recovered to $0.62 a share (or $160.3 million) in 2011 and to $0.70 a share (or $180.3 million) in 2012.
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Canadian stocks: Oxford Aviation Academy is key acquisition for CAE
CAE spent $62.8 million (or 3.4% of its revenue) on research in 2012. That’s up 41.1% from $44.5 million (or 2.7% of revenue) in 2011. This spending helps the company maintain its high market share.
CAE is also using acquisitions to expand. In May 2012, it paid $281.9 million for Oxford Aviation Academy, which operates flight schools in the U.K., the U.S., Australia, Denmark, Norway, Sweden and Hong Kong. These schools also train cabin crews and maintenance personnel.
In the latest edition of The Successful Investor, we look at how the Oxford purchase fits into CAE’s long-term outlook. We also examine the outlook for the airline industry. We conclude with our clear buy-sell-hold advice on the stock.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
CAE derives about half of its income from military clients. Do you have ethical objections to investing in a company with that degree of involvement with the military? If you find that objectionable, how would you feel about investing in a mutual fund that had CAE as one of its major holdings? Let us know what you think?
Comments
Mario
Pat has been recommanding CAE for a lond time now, the market seems to be quite slow to see the value of that stock, it has been moving sideways for months.
I could say the same for BBD,PGF,HL…which were buys
and highly recommended.Not easy to remain patient with these stocks.
But overall,I appreciate Pat’s expertise.
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X No, I don’t want to make big money in the stock market.
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Pat has been recommanding CAE for a lond time now, the market seems to be quite slow to see the value of that stock, it has been moving sideways for months.
I could say the same for BBD,PGF,HL…which were buys
and highly recommended.Not easy to remain patient with these stocks.
But overall,I appreciate Pat’s expertise.