Stockchase Opinions

Malvin Spooner CAE Inc CAE-T DON'T BUY Jan 31, 2002

Had a good run. Healthy company. A bit pricey.
$10.980

Stock price when the opinion was issued

transportation equip & components
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PAST TOP PICK
(A Top Pick Feb 05/24, Down 9%)

(Note short timeframe.)  Attributes underpinning her recommendation are still there. Pilot shortage. Revenue is still consistent, stable, growing. Struggled on defense side, margins have come off, but geopolitical tensions are still high. Signed 25-year, $11B contract in May; services still in demand.

DON'T BUY

Sideways range for a while, but improving technically. Issue is that given we're late cycle, there will be headwinds next year. He'd stay on the sidelines. Better places to put $$ to work.

HOLD

Getting more into defense simulation, away from medical. Challenged by fixed-price contracts, but many are rolling off and will be renegotiated with inflation-escalator clauses. Has been volatile. Bright future. Holds it in client TFSAs. 

SELL ON STRENGTH
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

CAE EPS of 24c beat estimates of 19c; revenue of $1.13B beat estimates of $1.08B. Backlog is now a record $18B. We have liked the stock historically, but it has had lots of execution issues. It has high market share, but we always thought it should be more profitable overall, considering its moat and duopolistic industry with really just one other serious global competitor. We would consider 25X earnings fairly priced and would prefer an exit into something more reliable. 
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HOLD

Operating margin gets hit by a lot of factors, not least of which is lumpy earnings from various segments. Demand for pilot training has been slower than hoped. Pickup on defense side, and those margins should improve.

PAST TOP PICK
(A Top Pick Feb 05/24, Up 35%)

Stock was down so much due to defense margins, it was like getting that part of the business for free. Q4 defense earnings showed a lot of improvement, and stock took off. Given the world today, likes exposure to defense.

DON'T BUY
Negative impact from US tariffs.

The names on this list are plenty. Start with the industrials, for instance. He's a big fan of BBD.B, but they make everything here in Canada.

An aerospace name like CAE, the rails, auto components like LNR and MG.

HOLD

World leader in flight simulation business. Strong company with recent performance in the stock market. Latest quarter has had a bit of a slowdown on sales, but overall the business is strong. Evolution of new pilots that will require new training will be good for business. Expecting high single digit revenue growth. Would recommend holding. 

SELL
Underwater -- hold or sell?

He models 22% growth at 23x PE. Normally he'd like it, but it's had too big of a move from the fall. Not convinced it'll hit target numbers. Less exposed to tariffs.

BUY

They make simulators for both commercial planes and fighter jets. That's how he's playing increased defence spending in Canada.