The Winners in the Regulated Aerospace Market
In our June 2025 deep dive on Diploma, we highlighted the exceptionally favorable industry dynamics currently benefiting critical supply chain companies within the aerospace sector. These tailwinds were the primary catalysts for the impressive IRRs generated for Diploma’s largest acquisition to date: Peerless. By the way, Diploma raised the full-year outlook meaningfully on March 18, on the back of continued outperformance for Peerless.
Operational turbulence at several major OEMs, occurring within a strictly regulated market, inherently strengthens best-in-class operators. This is a phenomenon that has persisted for decades; when the primary manufacturers struggle with delivery backlogs or quality control, the secondary market and specialized distributors become indispensable.
For Peerless, the pillars of success are speed to market and breadth of inventory. These factors explain their remarkable ability to sustain organic growth at approximately 9% for decades. In the mission-critical world of aerospace, companies like Peerless and HEICO thrive because they prioritize having the right part available immediately, effectively de-risking the supply chain for their customers.
Reliability and cost competitiveness offer a compelling value proposition, and especially long-lasting when competitors can’t really break into the same advantages you possess. HEICO’s subsidiaries are strategically anchored around these two pillars. Today, this serial acquirer’s become the global leader in the Parts Manufacturer Approval (PMA) industry, along with a strong foothold in electronic applications through the Electronic Technologies Group.
Despite being one of the best-performing US stocks in recent history, HEICO remains surprisingly under the radar for many investors (most likely due to some misconceptions around the optically high P/E).
This new in-depth report will present the following:
The Key Elements of the Investment case: The magic formula for sustained quality compounding - the elevator pitch on HEICO.
Corporate History and the Share Price Volatility: We examine HEICO’s rich corporate history, with a specific focus on the divergence between stock price volatility and underlying business performance. While history does not repeat itself, it often rhymes. In HEICO’s case, volatility has primarily shown up as fluctuations in the valuation multiple. We find the mechanics behind these shifts truly fascinating: why a stock may outperform its earnings growth in one period, only to lag in the next as the valuation multiple compresses.
Management, Value-Add Focus, and Financial Performance: The industry-leading management team and their uncompromising focus on value-added solutions represent a distinct competitive advantage over their peers. We will detail how this leadership culture facilitates superior execution, reflected in its financial performance. In all candor, we’ve rarely encountered such rationally humble managers than at HEICO.
The Acquisition Engine and Corporate Culture: We break down the mechanics of HEICO’s successful acquisition strategy, stressing the essential drivers of intrinsic value creation. This remains our primary focus as it is the true engine of shareholder returns.
The Wencor Acquisition: An analysis of the rationale and deal economics behind acquiring Wencor, the no. 2 player in the market back in 2023. We evaluate how this transaction strengthened HEICO’s market position and product mix.
The Financial Model and Post-COVID Normalization: A granular breakdown of ROIC, ROIIC, the reinvestment rate, the change in the capital allocation mix and how it affects intrinsic value growth. We aim to address the underlying drivers excluding the COVID-19 anomaly (when the lockdowns caused disruptions in global travel) to reveal the sustainable, recurring growth drivers of the current era.
The Risks and Uncertainties: Dramatically lower organic growth, delivering faulty parts that would create a long-lasting drag on the flawless quality reputation, a global recession affecting the size of the after-market, severely declining ROIICs on M&A (overpaying and poor post-acquisition execution), the Mendelsons not paying attention anymore (losing interest in their conglomerate), et cetera.
Part I - The Key Elements of the HEICO Investment Case
Over the years, we’ve sort of become mindful of Sosnoff’s Law, which suggests that the thickness of a research file is often negatively correlated with the future returns and quality of the investment. We believe that researching long-lived easy-to-understand investments, driven by a few core long-term catalysts, leads to superior returns. An overly complex investment case often erodes investor conviction during market corrections or macro crises. Put simply: “Know what you own.”
By distilling HEICO’s thesis into its most critical drivers, the goal is to present an elevator pitch focused on what’s driven its performance (and most likely will continue to over the next years).
The PDF of this write-up can be downloaded below.