CAE is a “wonderful long-term story”, this investor says

Shares of flight simulation and training company CAE Inc (CAE Stock Quote, Chart TSX:CAE) have been on the move this year, climbing almost 19 per cent since the start of January.

And while buying airlines like Air Canada and WestJet is a perennially drama-filled exercise, investors looking to get in on the booming aviation space may want to consider CAE, says investment manager Gavin Graham.

“If you like the outlook for aerospace, even with Boeing temporary difficulties, commercial aviation is doing really, really well,” said Graham, of the Income Investor Newsletter, to BNN Bloomberg on Wednesday.

“It’s because of those emerging middle class people who want to fly around the world and see all those exciting things they see in the movies. They’re going to get there on planes, which are going to get their pilots trained by people like CAE,” he says. “It’s a wonderful long-term story, although on occasion there will be bumps along the road.”

The International Air Transport Association predicts that annual passenger numbers on airlines will double globally by the year 2037, with the centre of gravity for the industry shifting eastward to the Asia Pacific region. The IATA says that the industry could support 100 million jobs in total worldwide by that point.

The world’s largest flight instruction company, Montreal-based CAE has seen strong growth in recent years, virtually doubling in value since early 2016. The company last reported earnings on February 8 where its third quarter revenue fell from $828.2 million a year ago to $816.3 million and diluted EPS dropped from $0.53 per share to $0.29 per share.

On the quarter, CEO and president Marc Parent said that the company is still on track for its 2018 guidance and he highlighted the fact that Q3 orders were $882 million, putting CAE’s backlog at a whopping $9 billion.

“We signed long-term training agreements with customers including easyJet, and year-to-date, we have sold 64 full-flight simulators, which already surpasses the annual industry record,” stated Parent. “In Defence, performance for the quarter was mixed. We had strong revenue growth, driven mainly by a higher level of services activity on contracts in the early stages of profitability ramp up. Additional timing related factors also contributed to lower Defence operating income in the quarter, which we expect to mitigate in the coming quarters.”