CAE Stock Falls 12% After Earnings: Is it a Buy Now?

CAE (TSX:CAE) stock looked like it was going to have another strong quarter, but disappointed investors with more costs.

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CAE (TSX:CAE) shares fell drastically on Wednesday as the Canadian flight simulator and training device company reported its third-quarter results. And despite matching earnings estimates, it was the future that had investors concerned. Shares dropped 12% after earnings, adding on to the drop in the last year, down 10% as of writing.

What happened?

CAE stock dropped after the company saw a 28% decline in profit for the third quarter, causing shares to fall as much as 12% as of writing. The stock stated that higher restructuring costs, along with acquisition costs, were behind the poor performance.

Net income for the quarter also dropped to $56.5 million, or $0.18 per share. This was a decrease from a year before, when CAE stock reported $78.1 million in net income, at $0.24 per share. The company then went on to explain that restructuring, integration and acquisition costs were to blame, costing $23.5 million.

Even taking out these one-time costs, earnings were still at or below estimates. The company would have reported $0.24 per share for the quarter in this case. So, while revenue rose to $1.095 billion from $1.02 billion, analysts were hoping for just a bit more.

Is it a one-off?

The issue investors may be facing is whether these costs are a one-off thing and whether the decline in earnings is permanent. While demand may remain fairly strong, it’s disheartening to see that the company saw a decrease in year-over-year performance as well as falling below estimates.

Furthermore, the company is also in the midst of transforming its defence business. There have been sales of its other sectors, with more of a focus on this area for the future. The company was able to then take in $1.3 billion in total order takes during the quarter, for a $11.7 billion backlog.

The company now expects to see its civil segment creating operating income growth in the mid- to high teens. As it closes out its healthcare business, the company should see a surge in cash flow that should keep investors interested.

What to watch

Right now, CAE stock is one where it’s likely best to stay on the sidelines. Despite seeing fairly strong results, there are still some risk factors here. First, it remains unclear what the next year could look like for CAE stock—especially given higher inflation and interest rates. What’s more, as the company continues its restructuring, there could be more costs pertaining to this as well.

That being said, overall, CAE stock has also been quite impressive. So, the company continues to provide its simulator services to a wide variety of private and public entities. Because of this, it does seem that demand will remain for the company in the near and distant future.

With that in mind, it may be that any turnaround could see a turnaround in share price as well. So, consider this when looking at CAE stock, and see whether this stock could belong in your long-term portfolio after the dust settles.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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