HEICO CORP (HEI) stock intrinsic value fair value estimate & owner earnings analysis

HEICO makes and repairs replacement parts for jet engines and aircraft components and sells specialized electronic components. Its Flight Support Group (70% of fiscal 2025 sales of $4.49 billion) designs FAA-approved replacement parts (about 20,000 approved parts to date) that airlines buy instead of more expensive manufacturer parts, and also runs repair and overhaul and parts distribution businesses. Its Electronic Technologies Group (the rest) sells niche components into defense, space, medical and industrial markets. Roughly 58% of sales come from commercial aviation, 31% from defense and space, and 11% from other industrial markets. Fiscal 2025 sales rose 16%, with 14% organic growth in Flight Support and 7% in Electronic Technologies; the first nine months of fiscal 2026 continued the pace, with sales up 21% and operating cash flow up 28%. How we measure earnings. We start from cash generated by operations and remove the timing swings in receivables, inventory, payables and customer deposits (fiscal 2024 included about $54 million, mostly advance customer deposits, which we did not count as earnings). We treat as real costs not only stock-based pay but also the company's stock contributions to its employee savings plan and the cash it sets aside for its deferred executive pay plan, about $78 million in fiscal 2025 combined. Only the portion of capital spending needed to sustain the business is deducted. On that basis, cash earnings per share were $1.52 in fiscal 2016, $3.00 in 2019, $2.71 in 2021 after the pandemic dip, $3.35 in 2022, $4.71 in 2024 and $5.98 in 2025. Before interest, the figures were $5.78 for 2024 and $6.90 for 2025. Amortization of acquired intangibles ($138 million in 2025) is added back because it is a non-cash cost of past acquisitions; acquired businesses have kept growing rather than wasting away, and the risk that some do fade is carried in the bear case. Starting point. The 2023 purchases of Wencor (about $2 billion) and Exxelia changed the size and mix of the business, so we measure from fiscal 2024 onward and use the middle of fiscal 2024 and 2025, $6.34 per share before interest. To that we add the businesses bought in the first nine months of fiscal 2026 (about $1.02 billion, including Ethos Energy's accessories and components business and Axillon's fuel containment business), valued at a starting cash return on price consistent with HEICO's record, because the borrowing that paid for them is already counted in the debt below. Fiscal 2025 cash earnings before interest grew 19%; our base case assumes about 7.5% a year in the first decade, well below that. How HEICO grows, and what we credit. HEICO has grown for decades in two repeatable ways: steadily adding newly approved replacement parts to its catalogue, and buying small, profitable niche companies year after year, usually leaving the founders in place and often keeping them as minority partners. Over fiscal 2016 to 2025 it spent about $4.9 billion on acquisitions while annual cash earnings before interest rose by about $760 million; after allowing for organic growth, that implies roughly a 9% to 12% cash return on what it paid. We credit organic growth only from the new-parts engine and the existing fleet, not from rising air traffic, price increases or margin expansion. We credit acquisitions only to the extent cash is held back to pay for them, so that cash is not also counted as available to owners. Base case ($192 per share). Organic growth of 3% a year. Half of cash is reinvested in acquisitions earning 9%. That gives about 7.5% growth a year for ten years, slowing to about 5.3% in years 11 to 20 and 2.9% in years 21 to 30, then flat. The business is worth about $226 per share ($31.9 billion). It owes about $2.45 billion, or $17 per share (mainly $600 million of 5.25% notes due August 2028, $600 million of 5.35% notes due August 2033 and its revolving credit line, less surplus cash, plus acquisition earn-outs). Outside partners own minority stakes in several subsidiaries, including Lufthansa Technik's 20% of HEICO Aerospace within Flight Support, and are entitled to about 7.4% of consolidated earnings, worth about $17 per share. That leaves about $192 for shareholders. Bear case ($92 per share). A commercial aviation downturn like 2020 to 2021, when cash earnings fell about 13% over two years: a 13% drop over two years, a recovery over two more, then 1.5% organic growth with acquisitions slowing to 30% of cash at a 7% return (about 3.6% a year), fading to about 2.2% a year in years 11 to 20. After that, earnings shrink 1% a year as airline and manufacturer pushback against independent replacement parts erodes the moat. Business value is about $118 per share. After $17 of debt and $9 for minority partners, about $92 is left. Even in this case cash earnings cover interest many times over, so the debt does not threaten the company. Bull case ($371 per share). Organic growth of 5% from the new-parts engine and fleet growth already in aircraft makers' order books. Seventy percent of cash is reinvested at 10%, giving about 12% growth for ten years, tapering to about 8.5% and then 4.9%. Business value is about $420 per share, less $17 of debt and $31 for minority partners. All cases are discounted at 6%. Because HEICO's notes carry fixed rates close to that, we made no adjustment for the cost of debt. What would make us wrong: a sustained loss of acceptance of independent replacement parts by airlines or engine makers, or a sharp fall in what HEICO earns on the companies it buys. The cash earnings since 2023 show no sign of the latter so far. Since our previous analysis, our estimates are much higher. The earlier work discounted cash flows at 8.5% to 11.5%, while we now use a fixed 6% and carry risk entirely in the cases. Strong fiscal 2025 results also raised the starting level. Working the other way, we now count savings-plan stock contributions and deferred executive pay as costs, deduct the minority partners' share, and credit only organic growth we can tie to the parts catalogue and existing fleet.