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HEICO (HEI -8%), an aerospace component and electronics supplier, is descending quickly today after its revenue fell short of analyst estimates in Q4 (Oct). Additionally, HEI reported a slimmer bottom-line beat compared to the previous quarter, potentially adding to today's downbeat sentiment. Similar to the set-up heading into Q3 (Jul), the stock ascended by around +6% over the previous three months, reaching highs of +13% late last month. The upward trend steadily pushed expectations higher, making HEI's top-line miss more disappointing.

However, despite the weaker-than-expected revenue performance in Q4, delivering just 8.2% yr/yr growth to $1.01 bln, a drastic slowdown from +37.3% posted in Q3, HEI delivered several highlights.

• A favorable combination of broad-based demand and acquisition-related impacts pushed sales in HEI's Flight Support Group (FSG) segment 15% higher yr/yr in Q4 to a record $691.8 mln. When backing out M&A, organic sales growth was still a healthy 12%. The FSG segment revolves around manufacturing components for sale at lower prices than OEMs. While a steady uptick in commercial flights remains important to FSG, the U.S. government is a critical customer, with defense and space crucial to HEI's long-term strategy.
• The government is also vital to HEI's Electronic Technologies Group (ETG) segment. Unfortunately for HEI, due to the nature of government contracts, revenue can fluctuate considerably from quarter to quarter. This dynamic clipped Q4 growth, with ETG recording a 1.8% drop in sales yr/yr to $336.2 mln. Furthermore, inventory destocking continues to unfold at some of HEI's customers, capping growth, especially across the non-aerospace and defense markets.
• Regarding HEI's Wencor Group acquisition, which operates as a standalone operation, the company noted that performance continued to exceed expectations in the quarter. HEI added that its decision to operate Wencor as a standalone company contributed to energetic sales, earnings and margins in Q4. Management mentioned that given Wencor's early success, it anticipates further revenue synergies.
• Looking ahead, HEI conveyed a glass-half-full attitude, expressing confidence in returning to growth in its ETG segment during the first half of FY25. Likewise, in FSG, HEI anticipates positive growth, supported by robust demand for most of its products. Additionally, given its business model regarding pricing below OEMs, HEI stands to benefit from potential budget cuts from the incoming administration. Management touched on the DOGE (Department of Government Efficiency) division, noting that it is low-hanging fruit.

HEI's Q4 sales miss and its slimmest earnings beat since 3Q23 were disappointing. However, like last quarter, HEI is bullish about its prospects, anticipating a rebound in ETG and additional growth in FSG in FY25. Furthermore, HEI believes DOGE will be outstanding for the company given the budget deficit and the amount of money the U.S. government must cut, presenting HEI with a significant opportunity. As such, HEI is worth keeping on the radar.