On Monday, Jefferies updated its outlook on CAE Inc . (NYSE: NYSE:CAE), increasing the price target to $19.00 from the previous $18.00, while keeping a Hold rating on the stock. The adjustment follows an analysis of foot traffic data at the company’s U.S. training centers, which serves as an indicator of simulator utilization rates.
The analyst from Jefferies utilized the Training Tracker, which monitors foot traffic across nine civil aviation training facilities within CAE's network, which includes approximately 70 locations worldwide. This subset represents about 33% of CAE's 343 full-flight simulators. The data suggests that there was a 1% year-over-year increase in traffic for the three months ending in September, which correlates with an estimated simulator utilization of around 69% for the second fiscal quarter of 2025.
This level of utilization aligns with Jefferies' estimates and shows a slight decline of 3 percentage points compared to the previous year. The report provided a specific metric to quantify the impact of utilization rates on the company's financial performance, stating that each 2-point change in utilization could translate to a C$0.05 alteration in the full-year earnings per share (EPS).
The current assessment reflects a cautious but stable view of CAE's operational performance, particularly in the civil aviation segment, which is a critical area of focus for the company. The hold rating suggests that while the firm acknowledges the company's consistent performance, it advises investors to maintain their current positions without further action at this time.
In other recent news, CAE Inc. revealed significant developments in its operations and market standing. The company reported a robust earnings growth in its first quarter of fiscal year 2025, with orders worth $1.2 billion and an adjusted backlog reaching a record $17 billion. Despite lower utilization in commercial aviation training, CAE projects a rise in revenue, margins, and a 10% annual adjusted segment operating income growth in fiscal 2025.
CAE has also secured a substantial $1.7 billion contract to provide the Royal Canadian Air Force with a comprehensive pilot training program. The 25-year contract includes live flying, simulation, and ground school instruction, further solidifying CAE's position in the industry.
In terms of analyst notes, BMO Capital Markets maintained an Outperform rating on CAE, acknowledging potential near-term impacts on CAE's training activities due to challenging industry supply chains but expecting the company's Defense segment to continue its gradual recovery. However, Morgan Stanley (NYSE:MS) downgraded CAE stock from Overweight to Equalweight due to revised margin expectations for the company's Civil Aviation business.
CAE's commitment to transparency continues with the recent filing of a report with the U.S. Securities and Exchange Commission (SEC), detailing operational updates for the period ending June 30, 2024.
Lastly, CAE shareholders have elected a new board of directors, with most nominees receiving over 90% approval, and changes in the executive team were announced, with CFO Sonya Branco stepping down and Constantino Malatesta assuming the role as interim CFO.
InvestingPro Insights
CAE Inc.'s recent performance aligns with Jefferies' cautious outlook, as reflected in the InvestingPro data and tips. The company's revenue growth of 6.21% over the last twelve months indicates modest expansion, consistent with the 1% year-over-year increase in foot traffic observed at CAE's training centers.
InvestingPro Tips highlight that CAE's stock price movements are quite volatile, which investors should consider alongside Jefferies' Hold rating. Additionally, while CAE was not profitable over the last twelve months, analysts predict the company will be profitable this year, potentially supporting Jefferies' increased price target.
The current Price to Book ratio of 1.87 suggests that the stock is trading above its book value, which may be factored into Jefferies' valuation considerations. It's worth noting that CAE does not pay a dividend to shareholders, focusing instead on growth and reinvestment.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips that could provide further insights into CAE's financial health and market position.
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