I last reviewed HEICO (HEI and HEI-a) in this August 26, 2025 post at which time it had just released Q3 and YTD2025 results. With the release of Q4 and FY2025 results following the December 18 market close, I revisit this existing holding to gauge its valuation.
I initiated a position in September 2019 and have periodically increased my exposure. When I completed my 2025 Mid-Year Portfolio Review it was my 5th largest holding. My next semi-annual review is to be completed within the next couple of weeks at which time I think HEI will still be a top 10 holding.
My total HEI-a exposure continues to consist of 900 shares in a ‘Core’ account and 400 shares in a ‘Side’ account in the FFJ Portfolio. In addition, a couple of young investors I am helping on their journey to financial freedom have HEI-a exposure. I, however, exclude their holdings when determining my exposure.
The few shares I own makes it irrelevant to cast my shareholder votes. I, therefore, choose to hold HEI-a shares since the valuation is typically superior to that for HEI shares.
IMPORTANT:
- HEICO Corporation has two classes of common stock (HEI and HEI-a). Both classes of shares are virtually identical in all economic respects except voting rights. The difference is that each HEI share is entitled to one vote per share while each HEI-a share is entitled to a 1/10 vote per share. This post focuses on the HEI-a shares since these are the shares I own.
- Do not confuse HEICO Corporation with privately owned The Heico Companies.
Business Overview
HEI’s website includes a section with links to the websites of many subsidiaries thus enabling us to learn about their respective operations.
The 2024 Annual Report/Form 10-K is a must read if there is any thought of investing in the company.
HEI’s Disciplined Acquisition Strategy
Acquisitions are an important element of HEI’s growth strategy. The following is extracted from HEI’s FY2024 Form 10-K.
Acquisitions have been an important element of our growth strategy over the past thirty-four years, supplementing our organic growth. Since 1990, we have completed approximately 103 acquisitions complementing the niche segments of the aviation, defense, space, medical, telecommunications and electronics industries in which we operate. We typically target acquisition opportunities that allow us to broaden our product offerings, services and technologies while expanding our customer base and geographic presence. Even though we have historically pursued an active acquisition policy, our disciplined acquisition strategy involves limiting acquisition candidates to businesses that we believe will continue to grow, offer strong cash flow and earnings potential, and are available at fair prices.
The About Us and Press Releases sections of the company’s website provide information on several of HEIs’ acquisitions over the years.
HEI makes conservative use of debt and uses its strong cash flow to reduce debt taken on for acquisition purposes. Management regularly articulates that its synergistic acquisitions are structured to be accretive to earnings within the year following closing.
In FY2025, HEI completed ~$0.63B of acquisitions. The following are the most recent.
Axillon Fuel Containment Acquisition
On November 10, HEI announced that its Electronic Technologies Group agreed to acquire Axillon Aerospace’s Fuel Containment Business from affiliates of SK Capital Partners, LP (“SK Capital”) for cash payable at closing. Financial terms and details were not disclosed.
EthosEnergy Accessories and Components Limited and EthosEnergy Accessories and Components Acquisition
On December 16, HEI announced that its Flight Support Group subsidiary, Wencor Group, LLC entered into an agreement to acquire EthosEnergy Accessories and Components Limited and EthosEnergy Accessories and Components, LLC. Closing is subject to governmental approval and standard closing conditions and is expected to occur in Q1 2026. Transaction terms and financial details were not disclosed.
Financial Results
Q4 and FY2025 Results
HEI’s most recently released financial results are accessible in the Form 8-K released on December 18 (see SEC Filings section of the company’s website). Release of the FY2025 Form 10-K will follow in due course.
These are HEI’s most recent non-GAAP Financial Measures.
I provide the most recent prior non-GAAP Financial Measures for ease of comparison.
Conventional And Modified Free Cash Flow (FCF) Calculations (FY2016 – FY2025)
FCF is a non-GAAP measure, and therefore, the manner in which it is calculated is inconsistent. Most companies subtract capital expenditures (CAPEX) from Net Cash Provided by Operating Activities found in the Consolidated Statement of Cash Flows.
In several posts, I touch upon why I deduct share based compensation (SBC) when analyzing a company’s FCF.
Unlike many technology companies that issue a ‘boatload’ of shares annually as part of its various SBC programs, HEI’s use of SBC is conservative. The FCF calculations using the conventional and modified method, therefore, do not result in a material variance.
FY2026 Outlook
HEI does not provide net sales and earnings guidance. Management continually states, however, that the company will continue to invest in research and development and execute its successful acquisition program.
Risk Assessment
HEI’s domestic senior unsecured long-term debt ratings are:
- Moody’s: Baa2 with a positive outlook (last reviewed on May 6, 2025)
- Fitch: upgraded from BBB to BBB+ with a stable outlook on June 18, 2025
The rating assigned by Moody’s is the middle tier of the lower medium-grade investment-grade category. The rating assigned by Fitch is the top tier of the lower medium-grade investment-grade category.
Both ratings define HEI as having an adequate capacity to meet its financial commitments. Adverse economic conditions or changing circumstances, however, are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.
*S&P Global does not rate HEI’s debt.*
Dividends and Share Repurchases
Dividend and Dividend Yield
On December 18, HEI’s Board declared a semi-annual cash dividend of $0.12/share payable in January 2026. This cash dividend will be HEI’s 95th consecutive semiannual cash dividend since 1979.
The company’s dividend history is accessible here. HEI’s dividend metrics are irrelevant in my investment decision making process since the majority of any potential return will likely continue to be in the form of capital appreciation.
HEI’s exemplary track record demonstrates that reinvesting in the business is the most optimal means of allocating capital.
Stock Splits and Share Repurchases
HEI has had six 5 for 4 stock splits over the years; twelve stock splits are reflected but investors must remember that HEI has 2 classes of common stock.
HEI issues shares as part of its employee compensation structure. It also periodically issues HEI-a shares to the sellers of some of the companies it acquires. This permits the sellers to participate in HEI’s wealth creation model. This explains the growth in the diluted weighted average number of outstanding shares in FY2016 – FY2025.
Looking at HEI’s Condensed Consolidated Statements of Cash Flows over the past several years, we see that share repurchases are negligible. They are generally for the redemption of common stock related to stock option exercises.
Valuation
The following reflects my estimate of HEI’s valuation for the Class A and B shares. Unfortunately, the share price of both share classes has surged on December 19.
Using the current brokers’ adjusted diluted earnings estimates (that are likely to change over the coming days), we get the following valuations.
HEI-a shares @ ~$251
- FY2026 – 21 brokers – ~46.6 using a mean of $5.39 and low/high of $5.15 – $6.06.
- FY2027 – 21 brokers – ~ 41.1 using a mean of $6.11 and low/high of $5.65 – $7.12.
- FY2028 – 15 brokers – ~ 36.4 using a mean of $6.89 and low/high of $6.05 – $8.42.
HEI shares @ ~$322.75
- FY2026 – 21 brokers – ~60 using a mean of $5.39 and low/high of $5.15 – $6.06.
- FY2027 – 21 brokers – ~ 52.3 using a mean of $6.11 and low/high of $5.65 – $7.12.
- FY2028 – 15 brokers – ~ 46.8 using a mean of $6.89 and low/high of $6.05 – $8.42.
Capital intensive companies often incur CAPEX levels that are comparable to their depreciation and amortization. HEI’s annual CAPEX, however, is typically much less than its annual depreciation and amortization. In FY2019 – FY2025, HEI’s annual CAPEX was (in millions of $) $29, $23, $36, $32, $49, $58, $46, and $73. Its annual depreciation and amortization, however, was $84, $89, $93, $96, $130, $175, $145, and $196. HEI can, therefore, allocate its capital toward acquisitions versus ‘maintenance’ CAPEX.
I prefer to gauge HEI’s valuation using FCF.
In recent years, HEI’s FCF/share calculated using the conventional or modified methods has typically been greater than diluted EPS with the exception of 2023. We can, therefore, expect HEI’s valuation calculated using FCF/share to be superior to its valuation calculated using diluted earnings.
The diluted weighted average number of common shares outstanding (in millions) in FY2022 – FY2025 was 138.037, 138.905, 140.198, and 140.771. Unless HEI suddenly decides to start repurchasing shares, the weighted average diluted outstanding share in FY2026 should be ~141.4. To arrive at this figure, I add the variance between the outstanding diluted shares in FY2024 and FY2025 to the 140.771 diluted weighted average number of common shares outstanding in FY2025.
Looking at the trend in HEI’s annual FCF and erring on the side of caution, ~$7/share and ~$6.80/share seems conservative for FY2026 when calculated under the conventional and modified FCF calculations methods.
Erring on the side of caution, I use I am increasing this level to ~141.8 million shares outstanding.
Divide the current ~$251 and ~$322.75 share price for HEI-a and HEI shares, the forward P/FCF for HEI-a shares is ~35.9 ($251/$7) and ~47.5 ($322.75/$6.80) for the HEI shares.
Final Thoughts
I like HEI’s long-term prospects. It is one of my largest holdings and I intend to increase my exposure. My preference, however, is to acquire shares when the investment community sours on a great company for no justifiable reason.
I do not think acquiring shares following the surge in HEI’s share price after the release of FY2025 results is wise. Having said this, I recognize that shares are almost always richly valued. This explains why the last meaningful purchase I made was for a young investor on April 7, 2025 @ ~$190.34/share. I continue to be of the opinion that a reasonable level in which to acquire shares is when HEI-a shares retrace to ~$230 (or lower) or ~$290 (or lower) for the HEI shares. Even at these share prices, HEI’s valuation is still lofty. We, however, need to consider the company’s growth prospects and successful track record.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to finfreejourney@gmail.com.
Disclosure: I am long HEI-a.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
