Is CAE stock a buy right now?

If you’re looking to pick up a hard-done-by name on the cheap, you may be interested in simulation and training tech company CAE (CAE Stock Quote, Chart, News TSX:CAE), which is down on its luck following the COVID-19-caused decimation of the airline industry.

And although portfolio manager Christine Poole says the stock looks like a bargain, there’s literally a
ton of cheap names out there to choose from.

“We don’t own CAE but it probably is [a buy right now] because I know it’s pulled back,” says Poole, CEO of GlobeInvest Capital, speaking on BNN Bloomberg on Wednesday.

“The stock was actually doing quite well if you call recall when Boeing’s 737 Max was being examined and the conclusion was that the pilots would have to receive a lot more training, and that would benefit CAE because they make simulators, and the stock appreciated on that news,” Poole said.

“And now, obviously, with airlines not flying, implying less need for their products and their services, the stock has pulled back,” she said. “I think relative to where the stock has traded in history, this is probably an attractive entry point [but] I just feel that there are other stocks that have pulled back in the industrial space that are a better investment.”

CAE, which is scheduled to report its fiscal 2020 fourth quarter next Friday, was certainly flying high at the start of this year, with the stock on a multi-year upward trajectory which culminated in a well-received earnings report in early February. Net income was up to $99.8 million from $79.5 million a year earlier and revenue for its Q3 2019 was $923.5 million, up from $816.3 million a year earlier.

The worldwide grounding of Boeing’s 737 Max aircraft had a role to play in the optimism surrounding CAE, with the company saying in its February quarterly update that it had orders for 44 full-flight simulators for the fiscal year so far including six for Boeing’s 737 Max.

“CAE had strong growth in the third quarter, with 13 per cent higher revenue and 37 per cent higher operating income, and we generated over $275 million of free cash flow,” said Marc Parent, CAE’s President and CEO in the third quarter comments. “Customers continued to put their trust in CAE as their training partner of choice, awarding us $1.1 billion of orders for a $9.4 billion backlog.”

And while much of those solid fundamentals remain intact, CAE’s share price has really been punished, falling from a high of $42 in early February to as low as $14.26 at the worst of the March market-wide pullback. The stock has recovered some since then but remains mired in low-$20 territory for now.

As far as COVID-19’s impact on the company goes, CAE announced on April 6 the suspension of both its dividend and share buyback program as well as the laying off of 2,600 of its 10,500 employees. But by April 20, the company had recalled all of those workers and was working on a contract signed with the Canadian government to design and manufacture 10,000 ventilators, with the first units to be delivered sometime in May.