After gaining 40 percent year-to-date, the steep ascent for Heico Corp HEI 0.14% may finally be over, and one Wall Street analyst thinks the stock has finally reached cruising altitude.
On Thursday, Deutsche Bank downgraded the high-flying jet engine part maker from Buy to Hold and said the stock has simply come too far, too fast.
The commercial aero group is up only around 12 percent in 2017, and analyst Louis Raffetto thinks Heico has reached the limit of its outperformance. Raffetto still loves Heico’s management team and business model, but he sees no compelling case for significant upside at this point.
Heico’s big 2017 run has come in the midst of improving air traffic trends, but Raffetto warned that investor expectations may have gotten too high.
“We see potential for continued pressure from the narrowbodies/widebodies delivery mix (mgmt discussed last Q) as well as some slowness seen in pockets of the MRO and interior markets,” Raffetto noted.
After its impressive run, the stock now trades at 37 times Deutsche Bank’s 2018 earnings estimate, roughly double the valuation of many of its peers. Raffetto says its current multiple has also served as a valuation ceiling for the stock in the past.
Looking ahead to fiscal Q3 earnings scheduled for after the market close on August 23, Deutsche Bank is calling for EPS of 53 cents, in-line with consensus expectations.
Heico had already surpassed…
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