CAE (NYSE:CAE)(TSX:CAE) is a global leader in training for the civil aviation, defense and security, and healthcare markets. Each year, the company trains more than 220,000 civil and defense crew members, including more than 136,000 pilots, and thousands of healthcare professionals worldwide. CAE helps define global training standards with the company’s virtual-to-live training solutions to make flying safer and maintain defense force readiness.
The company has a price-to-earnings ratio of 140.47, a price-to-book ratio of 3.51, and market capitalization of $8.45 billion. Debt is very sparingly used at CAE, as evidenced by a debt-to-equity ratio of just 1.11. The company has excellent performance metrics with an operating margin of 11.69% and a return on equity of 2.76%.
CAE has over 10,500 employees, 150 sites and training locations in over 35 countries. Incorporated in 1947 and headquartered in Montreal, CAE has built an excellent reputation and long-standing customer relationships based on experience, strong technical capabilities, a highly trained workforce and global reach. CAE’s consolidated revenue in fiscal 2020 was $3.6 billion and in fiscal 2019 was $3.3 billion.
CAE’s Civil Aviation Training Solutions segment provides training solutions for flight, cabin, maintenance, and ground personnel in commercial, business, and helicopter aviation. The company’s defence and security segment operates as a training systems integrator for defense forces in the air, land, naval domains, as well as for government organizations responsible for public safety. CAE’s Healthcare segment designs and manufactures simulators and develops courseware for student training.
CAE has a high degree of recurring business. The company operates in highly regulated industries with mandatory and recurring training requirements for maintaining professional certifications. Over 60% of the company’s business is derived from the provision of services and largely involves long-term agreements with many airlines, business aircraft operators and defence forces.
CAE’s economic moat is strengthened by the company’s broad global training network, technology-intensive training, deep subject matter expertise and recognizable brand. Further, the company provides innovative training solutions to customers in large addressable markets in civil aviation, defense, security and healthcare. Significant untapped market opportunities exist in these three core businesses and the company has the ability to grow market share over the long-term.
The company’s business also has underlying long-term secular tailwinds. The civil aviation sector is expected to grow as passenger traffic recovers. In defense and security, the market is also expected to continue to grow with an emphasis on the operational readiness of defense forces. Healthcare is expected to become increasingly relevant in a world more acutely aware of the benefits of healthcare simulation to help save lives in a healthcare crisis such as COVID-19.
CAE has significant potential to further utilize the company’s training network and generate more revenue from deploying new assets with accretive returns. A rising proportion of the company’s revenue from training services provides potential for lower cyclicality as training is largely driven by the training requirements of the existing fleet.
CAE’s continues to innovate by designing the industry’s most sophisticated training systems and employing the latest in digital technologies. The company has the potential to shape the future of training.
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Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.