CAE price target raised at RBC

Following the company’s second quarter results, RBC Dominion Securities analyst James McGarragle has raised his price target on CAE (CAE Stock Quote, Chart, News, Analysts, Financials TSX:CAE).

On November 12, CAE reported its Q2, 2205 results. The company posted Adjusted EPS of $0.24 on revenue of $1.13-billion, a topline that was up 8%, year-over-year.

“I am very pleased with our progress this quarter, which underscores our strong execution and the robust market demand for our Civil Aviation and Defense and Security solutions. In Defense, by leveraging our structural improvements and streamlined organization, we achieved notable growth and margin improvements,” CEO Marc Parent said. “We also made significant strides to retire risk by completing a Legacy Contract from our Defense backlog and to secure future growth with a $1.7 billion transformative award under Canada’s Future Aircrew Training Program.

McGarragle says it was a solid quarter.

“FQ2 results came in above and F25 guidance was maintained (also above) despite the negative impact from OEM delays,” he wrote. “Key in our view was indication that defense margin improvement continues to progress under the leadership of Nick Leontidis. Not only was this a positive in the quarter, but also gives us increased confidence in CAE’s ability to execute on the company’s longer-term defense targets, which would represent upside to consensus expectations and in our view would favourably impact valuation. We came away positive from the quarter and see increasing line of sight to meaningful operating leverage looking ahead.”

The analyst says with Parent leaving CAE after two decades, the company is in good hands.

“CAE’s progress in improving margins in Defense was a key positive from the quarter,” McGarragle added. “The early success by Mr. Leontidis gives us increased confidence in his ability to drive further improvement more in line with CAE’s longer-term double-digit margin target. Moreover, we believe continued execution in defense will drive a re-rate in valuation, which has been under pressure recently given recent issues in the segment. Key is that CAE’s valuation has come off meaningfully in recent years, with the company trading 1.8-turns below its trailing 5-year average. Importantly, each turn in valuation represents $4 on the share price (versus the shares trading at $29 [Wednesday]).”

As reported by The Globe and Mail, McGarragle November 14 maintained his “Outperform” rating while raising his price target on CAE from $24.00 to $27.00.