Why Heico Stock Is Falling Today

The company reported a choppy quarter, but the long-term thesis is intact.

Heico (HEI 0.95%) reported mixed results in its fiscal third quarter, beating earnings primarily thanks to a lower-than-expected tax rate. Investors were largely put off by the news, sending Heico shares down as much as 6% at the open and 3% as of 10:30 a.m. ET.

Strong aerospace, muted electronics

Heico is a maker of electronics and other components for a variety of industries, with an emphasis on aerospace. The company earned $0.97 per share in its fiscal third quarter ending July 31, beating the $0.92 per share estimate. But revenue of $992.2 million came in a little shy of the $995 million estimate.

The aerospace business was the stronger of the two, with revenue up 15% year over year on strong demand for replacement parts. Outside of aerospace, revenue was down 1% from a year prior due to slower medical products and other electronics sales. Margins in both businesses held steady, up slightly from a year ago but down from the previous quarter.

Is Heico stock a buy?

Heico is a longtime market beater — up nearly 800% over the past decade — that was thrust into the spotlight earlier this month when Berkshire Hathaway disclosed it had acquired shares. The interest from Berkshire is a strong endorsement, but those who bought in as a result might need time to get up to speed on how the company operates.

Like Berkshire, Heico manages the business for the long term and not quarter to quarter. The company is a serial acquirer that seeks out components with strong demand and that are not easily commoditized. The dealmaking and exposure to various industries can make quarterly results choppy. Strong medical demand during the pandemic is still creating inventory and supply chain issues in that segment, which could be weighing on near-term results.

For long-term focused investors, nothing in the Heico report suggested any issues up ahead.

Lou Whiteman has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Heico. The Motley Fool has a disclosure policy.

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