Desjardins Maintains Buy Rating For CAE (NYSE:CAE)

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Desjardins Capital Markets analysts have updated their comment on CAE, Inc. (NYSE:CAE), a training solutions company. The firm has a BUY rating on the stock with a price target of C$17. As for the recently reported quarter, Desjardins believes the results will have a neutral net impact on the stock price.

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Desjardins points to CAE’s solid backlog, mostly in-line quarter results, strong free cash flow and unchanged outlook to back its view that the latest results will have little effect on CAE shares

Earnings Highlights

CAE’s revenue of C$616 million in the latest quarter rose 17% YoY but missed Desjardins’ estimate of $626 million. The revenue also fell short of the consensus estimate of $625 million.

Coming to the bottom line, adjusted EPS of C$0.20 was in-line with Desjardins’ expectations, but slightly missed the consensus estimate of C$0.21.

Category performance

The civil aviation division was credited for the EPS gain last quarter. EBIT margin in the division was 16.6%, ahead of Desjardins’ estimated EBIT margin of $15.4%. The strong EBIT margin in the division helped offset weak revenue for the segment as a whole.

As for the military division, revenue of C$253 million topped Desjardins’ estimate of C$230 million but EBIT margin of 11.6% fell short of the target of 12.6%.

In the healthcare arm, CAE disappointed as an EBIT margin of 6% trailed Desjardins’ estimated margin of 9.1%.

CAE finished the fiscal 3rd quarter with a solid backlog of C$6.4 billion, driven in part by the civil division.

Solid free cash flow

CAE improved its net-debt to capital ratio to 29% from 34% in the previous quarterly, thanks mostly to solid free cash flow generation in the latest quarter. Free cash flow of C$194 million exceeded Desjardins’ estimate of C$39 million and the consensus target of C$34 million.

Buyback approval

On the back of the robust free cash flow, CAE has announced a plan to repurchase some of its outstanding shares. The board has authorized the reduction of outstanding shares by 2%. However, Desjardins thinks that the company could have done more than that.

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