Dealmaking Drives HEICO Stock's 100,000% Return
HEICO has been skillful with mergers and acquisitions over the years and this has resulted in a 100,000% share-price return.
Editor's note: This is part five of a 13-part series about companies whose shares have amassed 100,000% returns for investors and the path taken to generate such impressive gains over the long term. See below for links to the other stocks in this series.
Like Sherwin-Williams, HEICO (HEI) is another sleeper. Who has ever heard of HEICO? If you are in the aerospace business you probably have because HEICO is one of the largest suppliers of components for the aerospace and other industries and provides repair, maintenance and overhaul services for aircraft worldwide.
But if you are not in the aerospace business, HEICO is another anonymous company in the Standard & Poor's 500 Index. As we went to press, HEICO shares had appreciated by about 150,000% since 1980 and, in the process, have turned $1,000 into $1.5 million for the investors who have stayed in for the long haul.
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How did HEICO do this? Principally, the company grew through acquisitions. Since 1990, HEICO has completed 95 acquisitions of niche players in the aerospace business and put them under one banner.
The aerospace and related industries are particularly ripe for consolidations. There are many small companies that make critical components in the overall supply chain. These components range from airborne antennas to coaxial switches to flight deck panels and almost everything in between. But being small in such a large industry can present challenges for the companies and their customers. By consolidating the supply chain through acquisitions, HEICO can offer not just components, but rather integrated solutions.
And the major players in the aerospace business are looking for solutions. In 2000, Boeing and Airbus delivered about 800 planes. In 2023, there were nearly 1,400 deliveries of aircraft. Further, there have been 25,000 Boeing and Airbus planes delivered since 2000 – a good portion of which are still in service – and these aircraft need replacement components and repair and overhaul services.
But there are other passenger plane manufacturers and the military market may dwarf the commercial market. Through acquisitions, HEICO has positioned itself to provide end-to-end solutions for some of the most demanding and exacting original equipment manufacturers in the world.
Building wealth through acquisitions requires a very particular set of skills with a large helping of grit. HEICO has demonstrated the skillset and possession of the grit.
Proving this is easy. When companies are acquired at a price that exceeds the value of their hard assets – which means almost all acquisitions – the difference is recorded as "goodwill" on the balance sheet. When an acquired asset or company becomes impaired, a charge is levied against the goodwill on the balance sheet. Generally Accepted Accounting Principles (GAAP) require that companies test for impairments and disclose when they have occurred.
In the case of HEICO, a review of income statements back to 2004 shows no impairment charges to goodwill. This is an unheard of, if not nearly impossible feat.
The other nearly impossible feat that HEICO has accomplished is not reporting a loss over the last 20 years. This triangulates the company's skill in mergers and acquisitions.
The holy grail when you acquire another company is that once the target company is bought, it immediately adds, or is accretive, to the earnings of the company that purchased it. For a variety of reasons, this does not always happen. But a 20-year track record of positive earnings suggests that HEICO not only makes deals but only makes them when they are accretive to earnings.
What has been the result of all this dealmaking? Between 2004 and 2023, HEICO revenues grew from about $216 million to about $3.5 billion, for an average annual growth rate of nearly 15%. And earnings have grown from about $20 million to $443 million, for an average annual growth of nearly 17% – indicating improvement in gross and operating margins.
In short, the management at HEICO are rock stars and investors have been treated to the show of their life.
Note: This content first appeared in Louis Navellier's latest book, The Sacred Truths of Investing: Finding Growth Stocks that Will Make You Rich, which was published by John Wiley & Sons, Inc.
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