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HEICO (HEI) to Acquire Military Aftermarket Firm Wencor Group

HEICO Corporation HEI recently declared its intent to acquire a commercial and military aircraft aftermarket company, Wencor Group. With this acquisition, HEICO aims to expand its Flight Support Group businesses.

Per the terms of the deal, HEI is accountable to pay a purchase price of $1.9 billion in cash and $150 million in its Class A Common Stock, which will be paid at closing, or $2.05 billion in the aggregate.

Benefits of the Acquisition

Wencor complements HEICO’s aftermarket service business and is likely to provide impressive returns. Wencor boasts a strong portfolio of products in the aftermarket space and serves varied airlines worldwide, aircraft maintenance repair and overhaul companies, military agencies and defense contractors, thus enhancing the distribution channel and capabilities.

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The aforementioned factors will provide HEICO an opportunity to expand its customer base, enhance its product offerings and increase its market share in the aftermarket jet service business area.

HEICO expects the acquisition to be highly accretive to its earnings within a year after the conclusion of the transaction. It expects Wencor to generate nearly $724 million and $153 million in adjusted proforma revenues and EBITDA, respectively, in the calendar year 2023. It also anticipates having estimated tax benefits of roughly $75 million, which will be realized through the fiscal year 2038.

Overall, the acquisition is likely to be instrumental for HEICO’s growth in the aftermarket business space and may also provide a competitive edge to the company. This may attract more investors to choose the HEI stock.

Peer Moves

The acquisition strategy is adopted by companies to secure product diversification, enhance market share and achieve the economies of scale and operational efficiency to attain long-term goals. Apart from HEICO, defense companies that have recently indulged in acquiring other companies are as follows:

In November 2022, Curtiss-Wright CW completed the acquisition of Keronite Group Limited’s stock for $35 million in cash.

The Zacks Consensus Estimate for Curtiss Wright’s 2023 earnings has been revised upward by 1.6% in the past 60 days. Shares of CW have appreciated 19.8% in the past year.

In February 2023, AAR Corp. AIR acquired Trax USA Corp., a leading independent provider of aircraft MRO and fleet management software.

The Zacks Consensus Estimate for AAR Corp.’s 2023 earnings suggests a growth rate of 19.8% from the prior-year reported figure.  The Zacks Consensus Estimate for AIR’s 2023 sales implies a growth rate of 8% from the prior-year reported figure.

In December 2022, L3Harris Technologies, Inc. LHX signed an agreement to acquire Aerojet Rocketdyne for $58 per share in an all-cash transaction valued at $4.7 billion, including net debt.

L3Harris boasts a long-term earnings growth rate of 2.6%. The Zacks Consensus Estimate for LHX’s sales of $17.70 billion suggests a growth rate of 3.7% from the prior-year reported figure.

Price Movement

In the past year, shares of HEICO have rallied 32.4% compared with the industry’s growth of 5.4%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Zacks Rank

HEICO currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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AAR Corp. (AIR) : Free Stock Analysis Report

Curtiss-Wright Corporation (CW) : Free Stock Analysis Report

Heico Corporation (HEI) : Free Stock Analysis Report

L3Harris Technologies Inc (LHX) : Free Stock Analysis Report

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