HEICO Corporation (HEI) | The Buildout — AI Infrastructure
The Verdict
HEICO Corporation operates two segments: the Flight Support Group (FSG) supplies FAA-approved replacement parts and repair services for jet engines and aircraft components, while the Electronic Technologies Group (ETG) makes mission-critical electronic, microwave, and power-conversion products for defense, space, and industrial applications. For AI infrastructure, the 2026 acquisition of EthosEnergy gives HEICO the capability to repair and overhaul industrial and aeroderivative gas turbines—the same type of generating equipment being deployed to meet surging electricity demand from AI data centers. This adds a small but genuine link to the AI buildout, although it remains in its earliest innings and is not yet material to results.
| Market Cap | — |
| Revenue (TTM) | $4.9B |
| Revenue Growth | +18.8% |
| EBITDA Margin (TTM) | 27.8% |
| Net Debt | $2.4B |
| Earnings Beats | 6 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- 36-year track record of ~23% compounded annual share-price growth (management disclosure, Q1 FY26).
- Largest independent manufacturer of FAA-approved jet engine replacement parts, introducing ~500 new PMA parts annually, sustaining market share gains.
- Defense backlog at record levels; management expects a 'multiyear tail' with customers inquiring about 6x–10x production rates.
- Cash EBITA margins far exceed GAAP: FSG 28.6%, ETG 30.6% in Q2 FY26, reflecting true earning power.
- Proven M&A model: 31 minority partners, six acquisitions in FY2026 to date, credit facility raised to $2.2B, net debt/EBITDA 1.74x.
What We’re Watching
- H2 FY26 faces a $15–20M defense pull-forward headwind, which may soften sequential growth comparisons.
- ETG margin can swing sharply: Q1 was 19.8%, Q2 26.5%; management warns against extrapolating one quarter.
- Component repair organic growth constrained to 10% by parts availability; relief depends on supplier deliveries.
- Middle East conflict caused modest slowdown; escalation could widen impact.
The thesis is strengthening: organic growth nearly doubled sequentially, margins are trending higher, and defense is moving from tailwind to an arrived multi-year upswing. The open question is whether organic growth can stay in the mid-to-high teens once defense pull-forward effects fade and year-ago comparisons harden.
Earnings Beat
HEICO reported record Q2 FY26 revenue of $1,375.7 million, up 25% year-on-year, with gross margin of 41.4%. Net income surged 49% to $233.8 million, and consolidated EBITDA rose 37% to $408.3 million. Both segments posted double-digit organic growth, supported by record commercial and defense demand.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $1.4B | $1.2B | $1.1B | +25.3% |
| Gross margin | 41.4% | 38.6% | 42.5% | -110bps |
| EBITDA | $407M | $311M | $301M | +35.3% |
| EPS | $1.66 | $1.35 | $1.12 | +48.6% |
| FSG Organic Growth | 19% | 12% | n/a | — |
HEICO is … firing on all engines, business is very strong for us virtually across the board, including in our biggest markets, commercial aviation, defense and space. Orders continue at record or near‑record levels.— Victor Mendelson, May 28, 2026
Management tone: Management's tone shifted from 'particularly proud' in Q1 to notably more confident, with Victor Mendelson opening the Q2 call by saying HEICO is 'firing on all engines'. The team provided granular detail to back their enthusiasm, while maintaining conservative forward guidance, consistent with their long-standing under-promise, over-deliver pattern.
Management Guidance
For fiscal 2026, management reaffirmed ETG GAAP operating margin guidance of 22%–24%. CFO Carlos Macau informally raised the expected FSG GAAP operating margin range to 24%–26%, up from a lower implicit range. Revenue guidance remains directional: 'We anticipate increased sales in both FSG and ETG. supported by underlying demand for our products and contributions from recent acquisitions.' The company expects acquisitions to be accretive within a year of closing. No quantitative revenue growth target was set.
Trajectory
Revenue has climbed each quarter from $1,030M in Q1 FY25 to $1,376M in Q2 FY26, with organic growth accelerating to 19% in FSG and 17% in ETG. Gross margin, which dipped in Q1 FY26, rebounded to 41.4% as volume and aftermarket parts demand strengthened. EBITDA margins expanded to 29.6%, reflecting operating leverage. The defense pull-forward added an estimated 60bps to FSG margin; even without it, underlying profitability trended higher.
The Model
The model projects FY+1 (ending October 2026) revenue of $5,420 million and EBITDA of $1,528 million (28.2% margin). For FY+2 (ending October 2027), the projections rise to $6,350 million revenue and $1,810 million EBITDA, implying a margin of 28.5%. Near-term estimates are anchored on recent organic growth and contributions from the six acquisitions closed in FY2026. The FY+2 forecast assumes continued defense momentum and initial scaling of EthosEnergy, though model dispersion shows a modest tally gap (0.6% in FY+1, 0.9% in FY+2).
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $4.5B | $5.4B | $6.3B |
| YoY Growth | — | +20.8% | +17.2% |
| EBITDA | $1.2B | $1.5B | $1.8B |
| EBITDA Margin | 27.3% | 28.2% | 28.5% |
Projections are the median of 5 independent model runs. The model’s revenue sits 8.9% above analyst consensus.
For fiscal 2026, management reaffirmed ETG GAAP operating margin guidance of 22%–24%. CFO Carlos Macau informally raised the expected FSG GAAP operating margin range to 24%–26%, up from a lower implicit range. Revenue guidance remains directional: 'We anticipate increased sales in both FSG and ETG. supported by underlying demand for our products and contributions from recent acquisitions.' The company expects acquisitions to be accretive within a year of closing. No quantitative revenue growth target was set.
What Could Go Right — and Wrong
- Defense multi-year framework agreements signed in volume, converting 6x–10x production inquiries into firm contracts that double defense revenue over several years.
- EthosEnergy AI-related revenue scales to 5–10% of consolidated revenue, establishing a third growth pillar with HEICO-like margins.
- DoD alternative-parts adoption accelerates, opening military sustainment to PMA/DER parts and expanding FSG’s addressable market.
- Organic growth in FSG and ETG remains in the mid-to-high teens as new PMA part introductions and fleet growth sustain market share gains.
- Acquisition engine adds 2–4 percentage points of inorganic revenue annually while maintaining net debt/EBITDA below 2x.
- Organic growth decelerates sharply: FSG returns to mid-single digits as defense pull-forward effects fade and aircraft aftermarket cycle peaks.
- ETG margin reverts to 19–20% in several quarters, suggesting Q2’s 26.5% was a one-off mix benefit and that full-year guidance of 22–24% proves optimistic.
- Defense upcycle stalls: multi-year framework discussions fail to convert, and a change in administration or budget priorities slows procurement.
- PMA competitive moat erodes as a well-funded entrant or OEMs themselves aggressively target the aftermarket with price cuts or IP challenges.
- EthosEnergy fails to scale; AI-related turbine aftermarket remains a niche, contributing less than 2% of revenue indefinitely.
Looking Ahead
The next twelve months will test whether HEICO’s organic growth can stay elevated without the defense pull-forward, and whether the June 17 material agreement translates into a long-term contract. Management expects increased sales, but the burden of proof lies in Q3 and Q4 organic growth rates and the conversion of defense inquiries into firm orders. The EthosEnergy platform is expected to begin ramping, with AI-driven power demand providing an incremental tailwind.
- Q3 FY26 (Aug/Sep 2026)Q3 FY26 earnings — Tests if organic growth holds above 15% and FSG margin sustains 24%+.
- H2 FY26Defense framework agreements — Potential multi-year contracts converting 6x–10x inquiries.
- 2026 (timing uncertain)June 17 8-K details emerge — May reveal a significant defense or commercial framework agreement.
- FY2026–FY2027EthosEnergy revenue disclosure — First qualitative or quantitative mention of AI-related turbine repair revenue.
- Within 12 monthsCook Defence & CalRamic integration — New defense adjacencies; expected accretive within a year.
- TBDSemiannual reporting decision — Board consideration; could reduce quarterly transparency if adopted.
Financials
Annual Summary
| Metric | FY2025 | TTM |
|---|---|---|
| Revenue | $4.5B | $4.9B |
| Gross Margin | 41.1% | 40.1% |
| EBITDA | $1.2B | $2.5B |
| EBITDA Margin | 27.3% | 27.8% |
| Net Income | $690M | $790M |
| Free Cash Flow | $861M | $1.7B |
| Net Cash | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)40.1%
- EBITDA Margin (TTM)27.8%
- Net Margin (TTM)16.1%
- ROIC12.8%
- FCF Conversion67.9%
- SBC / Revenue0.6%
The Company
HEICO Corporation is organized into the Flight Support Group (FSG), which designs and distributes FAA-approved replacement parts for jet engines and aircraft components, and provides repair and overhaul services; and the Electronic Technologies Group (ETG), which manufactures mission-critical electronic, microwave, electro-optical, and power-conversion products for defense, space, and industrial markets. In fiscal 2025, FSG accounted for 70% of sales and ETG 30%, with defense-related revenue representing roughly 30% of the consolidated total.
The company operates a decentralized, acquisition-driven model: it typically buys 80–90% of niche aerospace and defense businesses, leaves management with a minority stake, and holds them permanently. As of the latest 10-K, HEICO had 31 minority partners across its subsidiaries. It runs manufacturing and repair facilities in 19 U.S. states and 10 countries, relying on incremental capacity additions rather than large greenfield projects.
Business Segments
Competitive Landscape
In FSG, the three principal jet-engine OEMs—General Electric (including CFM), Pratt & Whitney (RTX), and Rolls Royce—have historically been the sole source for substantially all replacement parts, according to the 10-K. HEICO competes by obtaining FAA-approved PMA parts, offering equivalent quality at lower cost. Other aftermarket competitors include TransDigm and MTU Aero Engines. In ETG, the competitive set is fragmented, with firms such as Crane, Woodward, Sulzer, and Wood Group, as well as numerous niche electronics players.
- General Electric (GE)Named as a principal jet-engine OEM; historically sole source for replacement parts; HEICO competes via PMA parts.
- Pratt & Whitney (RTX)Named as a principal jet-engine OEM; historically sole source for replacement parts; HEICO competes via PMA parts.
- Rolls RoyceNamed as a principal jet-engine OEM; historically sole source for replacement parts; HEICO competes via PMA parts.
- TransDigm (TDG)Competes through proprietary parts; named as an aftermarket competitor in industry scans.
- MTU Aero Engines (MTX.DE)Engine MRO provider; identified as a competitor in the aftermarket.
Supply Chain
HEICO sits as an aftermarket parts and repair provider, sourcing raw materials and components from specialty metals fabricators and electronics distributors, and selling to airlines, MROs, defense primes, and power-generation operators. No single customer exceeds 10% of revenue.