On Thursday, Jefferies began its coverage on shares of CAE Inc . (NYSE:CAE), issuing a Hold rating with a price target of $21.00. The coverage is based on CAE's potential to benefit from the ongoing structural pilot shortages and the increasing adoption of synthetic warfare training.
CAE Inc., known for providing training and simulation for the aviation industry, is recognized for its potential in a market facing a scarcity of pilots. The company's offerings are seen as well positioned to take advantage of this trend. Additionally, the rise of synthetic warfare training presents another opportunity for growth.
Despite these prospects, Jefferies points out that the immediate gains from pilot training are limited by the current softer rate of new aircraft deliveries. The industry standard suggests one simulator is needed per 30 narrow-body (NB) aircraft or 15 wide-body (WB) aircraft, which currently constrains the immediate market size for CAE's simulators.
The company's Defence and Security (D&S) sector is also undergoing a multi-year restructuring, which is aimed at improving the profitability of legacy contracts. However, this process is still in the early stages, and the firm believes it remains to be seen how this will impact CAE's near-term profitability.
The $21.00 price target reflects a sum-of-the-parts (SOTP) valuation approach, considering the limited upside in the Civil Aviation sector and the uncertainty surrounding the D&S segment's restructuring. Jefferies' initiation at a Hold rating suggests a neutral stance on the stock, awaiting clearer signs of progress in these areas.
In other recent news, CAE Inc. secured a significant contract valued at a minimum of $250 million from General Atomics Aeronautical Systems, Inc. to provide comprehensive support for the MQ-9B SkyGuardian Remotely Piloted Aircraft Systems acquired by the Government of Canada. The contract, spanning nine years with options for additional years, includes delivering aircrew and maintenance technician training, as well as IT and cybersecurity services.
Furthermore, CAE's fourth-quarter and full-year financial results for fiscal year 2024 showed promising growth, with a 13% year-over-year increase in adjusted backlog and $1.6 billion in orders for the quarter. Despite challenges in the Defense segment, the Civil segment saw a 6% revenue increase in Q4.
In analyst notes, BMO Capital maintained an Outperform rating for CAE, with emphasis on the Civil segment's robust outlook as a primary contributor to the company's valuation.
InvestingPro Insights
As CAE Inc. (NYSE:CAE) navigates the complexities of the aviation training market and the evolving landscape of synthetic warfare training, real-time data from InvestingPro offers additional context for investors. With a current Market Cap of $5.96 billion and a forward P/E Ratio for the last twelve months of 2023 at 26.51, CAE's financial health can be assessed alongside industry expectations. Despite a negative P/E Ratio of -24.74 indicating recent unprofitability, analysts project a turnaround with net income expected to grow this year.
InvestingPro Tips suggest that while CAE's stock generally trades with low price volatility, there are indications of potential short-term liquidity concerns, as short-term obligations exceed liquid assets. Moreover, analysts have revised their earnings downwards for the upcoming period, which may be a point of consideration for investors. On the upside, the company is predicted to be profitable within the year, aligning with Jefferies' Hold rating and the anticipated benefits from the pilot shortages and synthetic warfare training adoption.
For those looking to delve deeper into CAE's financial metrics and strategic positioning, InvestingPro offers a comprehensive suite of additional tips. To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 8 additional InvestingPro Tips available, informed decision-making is just a click away at https://www.investing.com/pro/CAE.
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