One-glance verdict
Overvalued
$13.91 our estimate vs market $24.63
Wall Street consensus: $29.94 (115.2% higher than our fair-value estimate)
77% above our estimate, beyond the bull case
Fundamentals snapshot
CAE Inc.
CAE · NMS · Industrials · Aerospace & Defense
Current price
$24.63
52-week range
$22.76 - $34.24
Market cap
$7.93B
Balance sheet
Stretched
3.34x Stretched
Net debt $1.87B. Interest coverage shows how many times profit covers the interest bill.
What stands out
2 Rewards
3 Risks
2 rewards · 3 risks
- Reward Revenue grew 4.4% last year.
- Reward Free cash flow was positive in 3/10 years.
- Risk Stock trades 49.3% above its 5-year average P/E.
- Risk Operating margin compressed from 11.2% to 10.1% over 3 years.
What this company does
CAE Inc.
CAE builds advanced flight simulators and provides training for pilots, cabin crews, and military personnel around the world. The company makes most of its money selling these simulators and training services to commercial airlines and defense departments. Because safety regulations require pilots to train continuously, CAE has a steady stream of customers who need its services to stay certified.
How the company got here
CAE, which stands for Canadian Aviation Electronics Ltd., was started in 1947 by a former Royal Canadian Air Force officer. The company's goal was to build a Canadian business that could take advantage of the advanced technology and skills developed during the war. Its first major project was building a flight simulator for the Canadian Air Force in the early 1950s, and it soon began exporting to other countries. Over the decades, CAE became a world leader in creating these highly realistic training machines for both military and commercial airplanes, even delivering a simulator for a new Boeing jet before the actual plane was finished. The company has grown by acquiring other simulation and training companies, expanding its reach globally.
What it actually does
Imagine a highly realistic, full-motion video game that pilots use to practice flying without ever leaving the ground; that's the core of what CAE does. The company builds and operates these advanced flight simulators for all kinds of aircraft, from commercial airliners and business jets to military planes and helicopters. Beyond just selling the machines, CAE runs a global network of training centers where pilots and cabin crews for airlines and defense forces go for their initial and ongoing training. This means a large part of CAE's business is providing training as a recurring service, not just a one-time product sale.
Civil Aviation
This is the larger of CAE's two main business areas and focuses on airlines and private aircraft operators. This segment sells full-flight simulators and provides a wide range of training services for pilots, cabin crew, and maintenance staff. Airlines and business jet companies pay CAE to train their employees at CAE's global network of training centers, making this a steady, service-based business. This part of the company also helps new pilots get their start and provides crew sourcing (finding and placing pilots and staff with airlines). It represents the majority of the company's business.
Defense and Security
This segment works with governments and military forces around the world. It provides training and simulation solutions that help defense forces prepare for complex missions on land, at sea, in the air, and even in space and cyberspace. Instead of just pilot training, this division offers mission support, helping military teams practice and plan for high-stakes situations in a safe, simulated environment. This business is a significant part of CAE, making up over 40% of the company's total revenue (the money it brings in from sales).
What management is betting on now
The company's leadership is currently focused on a transformation plan to make the business more efficient and profitable. A key priority is to strengthen and grow the Defense and Security business to take advantage of increased global defense spending. Management is also emphasizing capital discipline (being more selective and careful about where it invests money) to ensure higher returns on its projects. The goal is to harvest more profit from its existing world-class training network rather than focusing only on large expansions.
Price history
How the share price has moved
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Is it cheap or expensive?
Fair value $13.91 vs current price $24.63
Wall Street consensus is the average analyst price target: $29.94 (115.2% higher than our fair-value estimate).
Our most-likely fair value is $13.91 a share — about 43.5% below today's price of $24.63, so the stock currently looks expensive (overvalued).
Is it drowning in debt?
Stretched
Net debt $1.9B. Interest coverage 3.3x.
Net debt
$1.87B
Interest coverage
3.34x
CAE Inc.'s profit covers its interest bill about 3.3 times over. which is weaker than most peers shown here.
Stretched
Worse cushion
Baseline
Better cushion
CAE
BASELINE
CAE Inc.
Total debt $2.27B Interest coverage 3.34x This is the baseline the peer rows are being compared against.
Total debt $11.00B Interest coverage 3.60x +8% vs CAE Has roughly the same debt cushion as CAE.
Total debt $4.21B Interest coverage 7.94x +138% vs CAE Carries about 2.4x more debt cushion than CAE.
Total debt $1.15B Interest coverage 14.79x +343% vs CAE Carries about 4.4x more debt cushion than CAE.
Total debt $2.70B Interest coverage 4.07x +22% vs CAE Carries about 1.2x more debt cushion than CAE.
What you should know
The case for and against CAE
2 Rewards
3 Risks
Rewards
-
Revenue grew 4.4% last year.
-
Free cash flow was positive in 3/10 years.
Risks
-
Stock trades 49.3% above its 5-year average P/E.
-
Operating margin compressed from 11.2% to 10.1% over 3 years.
-
Insider ownership is only 0.2% (peer median: 0.7%).
The numbers
All the key metrics, grouped by purpose
Tap any ? icon to learn what it means.
Valuation
How expensive the stock looks
P/E (TTM)
39.10x
Forward P/E
23.40x
P/B
2.06x
P/S
1.59x
EV/EBITDA
11.43x
PEG ratio
1.83x
Profitability
How much profit each dollar creates
Gross margin
28.6%
Operating margin
10.1%
Net margin
5.8%
ROE
5.6%
ROA
3.5%
Health
Liquidity and balance-sheet strength
Debt / equity
0.59x
Current ratio
0.83x
Quick ratio
0.61x
Total debt
$2.27B
Total cash
$402.22M
Growth
How the business has been compounding
Revenue TTM
$3.53B
Revenue 5Y CAGR
7.0%
EPS TTM
0.63
EPS 5Y CAGR
11.5%
Cash flow
How much cash the business throws off
Operating CF TTM
$560.09M
Free CF TTM
$304.41M
FCF margin
8.6%
Dividend
Shareholder payout
Yield
—
Payout ratio
0.0%
Last ex-div date
2020-03-12