ATTENTION: North America’s Best Transportation Stock Is Now on Sale

Héroux-Devtek Inc. (TSX:HRX) serves the air cargo market and has benefitted from a surge in the transportation of medical and pharmaceutical supplies.

| More on:
edit Sale sign, value, discount

Image source: Getty Images

Héroux-Devtek (TSX:HRX) specializes in the design, development, manufacture and repair of fracture critical components for the aerospace market. The company is the third-largest landing gear manufacturer in the world, supplying both the commercial and defence sectors.

In the commercial sector, the company is active in the large commercial and business jet, regional aircraft and helicopter markets. On the defence side, the company provides systems, parts and services for defence aircraft in both the United States and in Europe. As such, a significant portion of the company’s sales are made to a limited number of customers located in Europe, the U.S. and Canada.

Diverse business segments

The company’s aerospace segment is divided into the commercial aircraft market, the defence aircraft market and the business aircraft market. Commercial aircrafts are primarily sold to airlines and defence aircrafts are mainly sold to governments. Business aircrafts are generally sold directly to consumers or to fleet operators. Hence, the demand for aircraft varies according to different factors. Commercial and business aircraft demand can be forecast based on passenger travel, whereas defence aircraft demand is driven by geopolitical climate and defence budgets.

Impact of COVID-19 pandemic

The COVID-19 pandemic has had a huge impact on the company and the aerospace industry, particularly for commercial air travel. Flight traffic is down 80% due to global lockdowns and the company has been impacted due to travel bans. This has resulted in delayed deliveries and canceling orders of new commercial aircraft.

Worldwide, supply chains are also disrupted by varying degrees of government imposed lockdowns as well as the direct impact on manufacturing facilities of virus outbreaks. Despite these uncertainties, Héroux-Devtek has responded well by reducing costs and developing newer lines of business.

Aftermarket service potential

The company expects a significant decrease in the demand for aftermarket services, due to the high percentage of grounded fleet. While it’s still rather early to determine the speed and extent of the full recovery, most industry analysts expect to see air travel start resuming gradually in some Asian markets by the end of 2021. This should serve as a big profit boost to Héroux-Devtek.

Lucrative air cargo business

Héroux-Devtek serves the air cargo market and has benefitted from a surge in the transportation of medical and pharmaceutical supplies. The air cargo market is expected to continue to face a somewhat challenging business environment with significant regional performance differences driven by the timing at which economies re-open.

Optimistic future outlook

In 2020, global defence expenditures reached over $1.9 trillion marking the single largest year-over-year increase in over a decade. Fighter jets, which account for a key portion of the company’s defence sales, is expected to grow the fastest in 2022.

The business aircraft market demand, which Héroux-Devtek serves, is more volatile than commercial and defence aircraft market. Since the beginning of the COVID-19 pandemic, global business aviation has been less impacted than the commercial aircraft market.

While non-essential traveling might be significantly reduced over the next few years, an increase in demand from anxious flyers willing to avoid crowded airports is expected.  This should be a big benefit to Héroux-Devtek.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.

More on Investing

Canadian small-cap energy companies are performing well.
Energy Stocks

Surge Energy Stock Has Doubled in 2022 and There’s Still Steam Left

Canadian small-cap oil and gas stocks seem unstoppable this year!

Read more »

Stocks for Beginners

Where to Find Good News in a Market Pullback

News in a market pullback is often negative. Fortunately, it’s not all bad. There are some great buys right now.

Read more »

Oil pumps against sunset
Energy Stocks

Top 3 Energy Stocks for 2022

Energy stocks like Enbridge (TSX:ENB)(NYSE:ENB) should be on the top of your list.

Read more »

financial freedom sign
Dividend Stocks

Generate Enough Passive Income to Retire

Looking to generate a stream of passive income to retire on? Here are several stocks to start building out your…

Read more »

Volatile market, stock volatility

2 Defensive Dividend Stocks to Buy in a Volatile Market

Defensive dividend stocks can help your portfolio ride out a market downturn.

Read more »

oil and natural gas
Energy Stocks

3 Reasons Oil Stocks Are Outperforming Tech This Year

Oil stocks like Baytex should be on your watch list.

Read more »

exchange-traded funds

3 Canadian ETFs to Buy to Help Navigate the Ongoing Volatility

Canadian ETFs are some of the safest investments you can buy, so these three low-volatility ETFs are perfect for today's…

Read more »

oil and gas pipeline
Energy Stocks

3 High-Yielding Energy Stocks to Buy Amid Rising Volatility

These three energy stocks can boost your passive income.

Read more »