Webcast #45: CAE Will Fly Higher in 2023 (6 minutes)

CAE is a stock we added to suitable client portfolios during the summer.

The company expects to grow its earnings per share in the mid-20% range between 2022 and 2025 on a compounded annual rate.

CAE has three divisions, two of which cover the overwhelming majority of their profit.

First, CAE trains pilots in its civil aviation division. This is the bulk of their income. Over the next decade, we expect the world to need over 300,000 new pilots because of retirements and increased travel demand. All these new pilots will need to be trained, and CAE is a top global leader in the field. Some investors that seek to invest in growing travel demand turn to the airlines. However, unpredictable fuel costs and labour expenses have always discouraged us from buying any stock in this sector.

Second, CAE trains in the defense and security area. Their platform covers air, land, sea, space, and cyber. With the very unfortunate war transpiring in the Ukraine, no government – especially one belonging to NATO – will be cutting their defense budget any time soon. Training troops via simulation is an affordable option for governments at home and abroad – without the need to hike taxes.

Third, its health division is small and immaterial but offers great potential as the need for medical care proliferates going forward.

This stock caught our attention because of a poor quarter a few months ago. This was due to two defense contracts that accompanied higher costs that exceeded its expected budget. CAE’s CEO insisted on the accompanying conference call that this was an isolated incident. The risk would be that he was wrong. But, based on his exceptional reputation, we trust his word.

Heading into 2023, we believe that CAE is a stock that will continue its October trend (+20% so far this month) and continue to fly higher.