HEICO Corporation (HEI) | The Buildout — AI Infrastructure

The Verdict

HEICO makes replacement parts for jet engines and aircraft, and electronic components used in aviation, defense, space, medical and telecommunications equipment. Its AI connection is indirect. Components from several of its electronics subsidiaries go into data center construction, and its repair businesses work on the industrial gas turbines and aeroderivative engines that generate power. Management treats AI as one contributor among many, describing the strategy as steady compounding rather than a single-driver story.

Earnings Beat

HEICO reported record results for Q3 FY2026, the quarter ended July 31, 2026: net sales of $1,413.1M, up 23%, a 41.1% gross margin, operating income of $355.2M, up 34%, and net income of $235.4M, up 33%. Organic net sales growth was 14%. ETG was the standout, with operating income up 55% and a pre-amortization operating margin of 29.9%.

Management tone: Tone on operations was enthusiastic, with Eric Mendelson closing his ETG remarks with 'Wow.' Tone on guidance moved the other way. Having printed roughly 200 basis points above the 22%-24% ETG margin guide in two straight quarters, Carlos Macau reaffirmed the range and said he did not want to 'plant a flag.' On the supply chain, component repair was described as 'consistent, not materially better.' Pull-forward language softened: after disclosing a $15M-$20M defense pull-forward in Q2, management said on the Q3 call that current expedite requests are not creating a later gap.

Management Guidance

For FY2026, management reaffirmed GAAP operating margins of 22%-24% at ETG, which it said equate to roughly 26%-28% EBITDA margins, and repeated its expectation of increased net sales at both FSG and ETG for the remainder of the fiscal year. Carlos Macau framed FSG margins at 'probably 24% to 26%' as his own thinking rather than official guidance. Capital expenditures are estimated at approximately $85M-$95M, and management put capex near 1.5% of sales with 2% manageable. Q4 FY2026 operating cash flow carries the estate-payment drag from the payment to the estate of the past Chairman and CEO, and management expects Q4 working capital to be no different from Q3.

Trajectory

Revenue has climbed each quarter through FY2026: $1,178.6M in Q1, $1,375.7M in Q2 and $1,413.0M in Q3, against $1,030.2M, $1,097.8M and $1,147.6M in the comparable FY2025 quarters. EBITDA margin went from 26.4% in Q1 FY2026 to 29.6% in Q2 and 29.3% in Q3, versus 26.8%, 27.4% and 27.4% a year earlier. Gross margin followed the same shape: 38.6%, then 41.4%, then 41.1%. Acquisitions are doing part of the work: in Q2, reported aftermarket parts revenue grew 21.4% while organic growth in that line was about 2%. Management attributes the segment margin improvement partly to mix, and held its ETG margin guide while beating it.

The Model

The model projects FY+1 revenue of $6,165M and EBITDA of $1,806M, a 29.3% margin, then FY+2 revenue of $6,930M and EBITDA of $2,051M, a 29.6% margin. The near term rests on the disclosed backlog of $2,622.6M at April 30, 2026, with $1,177.0M converting in the remainder of FY2026, plus recent acquisitions and continued demand in both segments. FY+2 depends on whether ETG's mix-driven margin strength persists and whether the acquisition pipeline converts close to $3B of deployable capacity into revenue.

Projections are the median of 5 independent model runs. The model’s revenue sits 8.9% above analyst consensus.

For FY2026, management reaffirmed GAAP operating margins of 22%-24% at ETG, which it said equate to roughly 26%-28% EBITDA margins, and repeated its expectation of increased net sales at both FSG and ETG for the remainder of the fiscal year. Carlos Macau framed FSG margins at 'probably 24% to 26%' as his own thinking rather than official guidance. Capital expenditures are estimated at approximately $85M-$95M, and management put capex near 1.5% of sales with 2% manageable. Q4 FY2026 operating cash flow carries the estate-payment drag from the payment to the estate of the past Chairman and CEO, and management expects Q4 working capital to be no different from Q3.

What Could Go Right — and Wrong

Looking Ahead

The next twelve months turn on items the source leaves open. Fiscal Q4 2026 tests the ETG margin guide and absorbs the estate-payment cash drag. The acquisition pipeline, described as 'incredibly full,' sits against a revolver extended to June 2031. And the policy items — Right to Repair in the fiscal 2027 NDAA, the DoW framework agreements, and Golden Dome — remain unconfirmed or unquantified. The AI-linked revenue sits inside these, small and unnamed.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

HEICO's own 10-K describes it as believing it is the world's largest manufacturer of FAA-approved jet engine and aircraft component replacement parts, other than OEMs and their subcontractors, and a leading manufacturer of electronic equipment for aviation, defense, space, medical, telecommunications and electronics. The Flight Support Group designs and makes replacement parts sold at lower prices than OEM parts, and repairs, overhauls and distributes components, avionics and instruments. The Electronic Technologies Group makes electronic, data and microwave, and electro-optical products, from power conversion and RF amplifiers to connectors, memory and avionics displays.

HEICO operates as roughly 100 decentralized businesses with nearly 13,000 team members, and it compensates on earnings rather than revenue. It has made about 110 acquisitions and holds 31 minority partners, and management says businesses are bought to be owned in perpetuity. Manufacturing is low-capex by design — management puts capital spending near 1.5% of sales — and the FY2025 property table lists US manufacturing, repair and distribution facilities across 19 states plus international sites in 10 countries the filing names.

Business Segments

Competitive Landscape

The competitive backdrop is defined by OEM sole-source positions. The FY2025 10-K states that historically the three principal jet engine OEMs — General Electric (including CFM International), Pratt & Whitney and Rolls Royce — have been the sole source of substantially all jet engine replacement parts for their engines, and that other OEMs have been the sole source of replacement parts for their aircraft component parts. HEICO's PMA and DER model is an FAA-approved alternative to those positions. Management says adoption is 'going extraordinarily well in the markets that want it,' and that it deliberately does not offer alternatives where its agreements preclude them.

Supply Chain

HEICO sits between specialty-material and electronic-component suppliers and the operators, repair shops, defense primes and infrastructure builders it sells to. No supplier is named in its filings, and no neighbor transcript mentions HEICO by name.