Take a pass on CAE, Christine Poole says

Flight simulation company CAE (CAE Stock Quote, Chart TSX, NYSE:CAE) should do well by its acquisition of Bombardier’s training program, says Christine Poole of GlobeInvest Capital Management, who nonetheless remains unconvinced that the stock is a buy.

Montreal-based CAE reported its second quarter of fiscal 2019 financials yesterday, boasting a 20 per cent uptick in revenue and a backlog that has grown to record levels.

With respect to Q2/19, CAE President and CEO Marc Parent stressed the $645-million Bombardier deal along with a $170-million training agreement recently signed with British discount carrier easyJet.

“CAE had a good performance in the second quarter with double-digit earnings growth, strong free cash flow, and a record order backlog,” said Parent in a press release. “I am especially pleased with the continued progress of our training strategy as demonstrated by $986 million in orders in the quarter and two important announcements last week, involving the acquisition of Bombardier Business Aircraft Training to expand our position in the business aviation training market and a major airline outsourcing with easyJet.”

CAE’s second quarter included $743.8 million in revenue, compared to $618.2 million for 2018’s Q2, to go along with a net income of $63.6 million, a two per cent year-over-year increase and an EPS of $0.23 per share, a cent better than last year’s $0.22 per share. The company saw its total backlog balloon to $8.668 billion, a 24 per cent growth over last year’s $7.004 billion.

The Bombardier deal is especially important, says Poole, who thinks CAE’s business is likely to keep growing.

“Overall, I think flight simulation is a good area to get into because air travel is increasing and pilots have to be trained,” says Poole, CEO and managing director at GlobeInvest, to BNN Bloomberg. “CAE already has a lot of relationships and businesses in that business space, so good for CAE. It enlarges their share in that space.”

“We don’t own CAE. It’s is a reasonably priced company but we just don’t see reason to put money into it at this point,” she says.

CAE has been a worthwhile company to own over the past half-decade where it has now more than doubled in value from mid-2013. The stock hit an all-time high of $28.15 in mid-June of this year and has since pulled back. As of early trading on Wednesday, CAE is up over six per cent.