Opinions

Colin Stewart Heroux-Devtek Inc. HRX-T PAST TOP PICK Oct 26, 2021

(A Top Pick Jun 30/21, Up 5%) Well-operated within aerospace. They make landing gear. With airline traffic coming back, it'll help HRX, while their defence business helped it withstand the pandemic. It trades at a big discount to peers. He expects them to make another acquisition sometime. A good capital builder and allocator. They focus on a niche, and he expects personal travel to rebound with business travel to follow in the next few quarters. It remains a core position for him.

Colin Stewart

Owned

Unlock Rating

$18.820

Stock price when the opinion was issued

misc industrial products

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PAST TOP PICK

(A Top Pick July 21/16. Down 20.91%.) Earnings have declined and pretty modest growth is being forecast. With their 9% free cash flow yield, it is still a very interesting company.

TOP PICK

They execute brilliantly, integrating very well. They produce landing gear for airplanes. They finished absorbing a major acquisition of a Spanish company which got them into Airbus. They also work on the Boeing 777x. The capex and acquisition spend is now done, so they can pay down debt or buy more companies. HRX is one of the most profitable companies in aerospace/defence. But the market hasn't given them the credit in the last quarter, so now is a good time to take advantage of their discount valuation. (Analysts’ price target is $22.71)

TOP PICK

A great time to buy this as the economy is opening up and airlines start to re-hire pilots. The commerical aviation space should improve in coming quarters. HRX did a great job managing 2020 with 68% came from defence, but the stock traded as if 100% came from commercial. Still trades at a discount and generates free cash flow. Boasts 15% EBITDA margins. Things will get better as the year goes on. A screaming buy. (Analysts’ price target is $19.50)

BUY

Great management team. Stick-handled the pandemic well, by focusing on defense rather than commercial. Commercial production should start to pick up. Trades at massive discount to US defense peers. Generates cash, which will increase when it returns to firing on all cylinders.

TOP PICK

Canadian-based aerospace, in both defence and commercial. Commercial came under pandemic pressure, but defence performed well. Last year, it had close to record profitability and strong free cashflow, using it to reduce debt. Steady and quality business. A reopening play. Discounted valuation. Well managed, strong balance sheet, chance for acquisitions. No dividend. (Analysts’ price target is $21.92)

WEAK BUY

They make landing gear in one of their divisions. They are taking business from the old supplier. They make niche products for the aerospace industry. There is a lot of volatility to it. As the airline business recovers over the next 3 to 5 years this company will make some money. The management team is well invested in the story.

BUY

Has done a fantastic job. In the top 5 of navigating the pandemic. Landing gear and aerospace business. Commercial business is slowly ramping up now. Should see a string of earnings beat in the next few quarters. The margin expansion will be good. An area of the market he wants to be in. Management can execute. Continues to buy back stock.

PAST TOP PICK

(A Top Pick Apr 20/21, Down 17%) Good space and good management team let you stick with it for the long term. Best days are still ahead. Once work for Airbus and Boeing comes back, cashflow will be massive.

BUY

Very strong Canadian company that doesn't get enough attention from the markets. Last quarter starting to prove business prospects. Landing gear in very high demand within airline sector. Trading at discount to other names in the sector. Very high barriers to entry within the business. Margins continue to expand - will be good for cash flow. Balance sheet very strong with cheap valuation.

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Colin Stewart Heroux-Devtek Inc. HRX-T PAST TOP PICK Oct 26, 2021

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