You mentioned in a question about the balance portfolio that some equities are on watch based on their slow or bad performance. One of these was CAE. It has been in a negative momentum decline since early 2021.
What are your thoughts about continuing to hold this stock going into 2024? It has a pretty decent backlog but will most if it come to fruition?
Thank You,
Andrew
CAE has been recovering (a bit at least) since the end of COVID and is now trading at 21x times' Forward P/E (historical averages in the last few years range from 20x to 27x). In the last five years, revenue grew by 8% on average, supported by an occasional large acquisition. The balance sheet is thus leveraged, with net debt of $2.3B and net debt/EBITDA of 3.7x. The company has been reinvesting heavily back into growth. Based on consensus estimates, sales are expected to grow by 6% - 8% over the next few years. Overall, we think CAE is an decent name to get exposure to the aerospace industry, and there really is not a lot of selection in that sector in Canada. We like the backlog, but would like to see margins improve. We do think most of the backlog will be realized. We are willing to give it a couple of more quarters (but reserving the right to change our mind).