The Aerospace Parts Empire That Keeps Your Flights Running

Why this family-run "parts store for planes" might be one of the best compounders you've never heard of

When airlines need replacement parts for their aircraft, they face a peculiar problem: OEM manufacturers like General Electric and Honeywell charge monopoly prices for components that cost pennies to produce. Enter HEICO Corporation—a Hollywood, Florida-based company that has spent decades doing something deceptively simple: reverse-engineering aircraft parts, getting them FAA-certified, and selling them to airlines at 30-50% discounts. The result? A business that has compounded at over 20% annually for 35 years under the Mendelson family's stewardship.

At $323.59 per share, HEICO commands a market cap exceeding $45 billion. The question isn't whether this is a quality business—it clearly is. The question is whether the market has already priced in the next decade of excellence.

What Does HEICO Actually Do?

HEICO operates through two synergistic segments. The Flight Support Group (FSG) generates roughly 68% of revenue by designing, manufacturing, and distributing FAA-approved Parts Manufacturer Approval (PMA) components. Think jet engine combustors, hydraulics, and avionic accessories—mission-critical parts that airlines need constantly as their fleets age. With over 19,000 FAA-approved parts and 500 new approvals annually, HEICO holds a dominant position. Their nearest competitor has approximately 2,000 approvals.

The Electronic Technologies Group (ETG) contributes the remaining 32%, manufacturing high-reliability electronic components for defense, space, medical, and telecommunications applications. While smaller, ETG generates higher operating margins and provides diversification against commercial aerospace cycles.

Is It Essential or Nice-to-Have?

Rating: 9/10

Aircraft parts aren't discretionary. When a combustor needs replacing, airlines don't defer the purchase—they can't. HEICO's business sits squarely in the non-negotiable maintenance category. The commercial aerospace aftermarket was valued at $29 billion in 2023 and is projected to reach $40 billion by 2030. With over 20,000 commercial aircraft flying globally, parts wear out predictably, creating recurring demand that persists through economic cycles. The only caveat preventing a perfect 10: during severe downturns like COVID-19, flight hours drop, temporarily reducing parts consumption.

What Moats Protect the Castle?

Rating: 9/10

HEICO's competitive advantages are formidable and multi-layered:

The FAA certification process creates a genuine regulatory moat. Each PMA requires extensive testing, documentation, and approval—a process that can take years and costs millions. New entrants face both capital barriers and the challenge of building relationships with airlines who demand perfect safety records. HEICO has zero accidents attributed to its parts.

Scale compounds the advantage. With 19,000 PMAs versus 2,000 for competitors, HEICO can offer airlines comprehensive solutions rather than piecemeal alternatives. Once integrated into an airline's maintenance systems, HEICO becomes embedded—switching costs are real because changing suppliers requires new compliance documentation, inventory adjustments, and staff training.

The Mendelson family's acquisition expertise constitutes a softer but equally valuable moat. Their reputation as "good home" acquirers gives them proprietary deal flow—owners of niche aerospace businesses often prefer selling to HEICO over private equity firms focused on short-term exits.

Are Moats Expanding?

Rating: 8/10

Yes, but methodically rather than explosively. The 2023 acquisition of Wencor Group for $2.05 billion—HEICO's largest deal—added 6,000 PMA parts and expanded distribution capabilities. Management continues executing bolt-on acquisitions in adjacent niches (industrial turbines, defense electronics), extending the company's addressable market.

The aging of global aircraft fleets works in HEICO's favor. Airlines increasingly fly planes longer, and Boeing's manufacturing struggles have extended delivery timelines for new aircraft. Every year an older plane stays in service means more replacement parts needed—a structural tailwind that strengthens HEICO's position.

How Strong Is the Balance Sheet?

Rating: 7/10

HEICO carries approximately $2.28 billion in debt against $242 million in cash, resulting in net debt around $2 billion. The net debt-to-EBITDA ratio has improved to 2.06x from 3.04x a year earlier, reflecting strong cash generation paying down Wencor-related borrowings.

The current ratio sits at 3.43, indicating ample liquidity. With A-/A3 investment-grade credit ratings and free cash flow conversion exceeding 135% of net income in fiscal 2025, the balance sheet is solid though not a fortress. One point deducted because significant goodwill ($3.66 billion) from acquisitions makes book value less meaningful—this is typical for serial acquirers but worth noting.

Is EPS Accelerating?

Rating: 8/10

Absolutely. Fiscal 2025 delivered $4.90 in diluted EPS, up 34% from $3.67 in fiscal 2024. This follows five-year EPS compounding of approximately 16.4% annually, with the recent year substantially exceeding the long-term average.

However, consensus estimates suggest growth moderating to 12-14% annually over the next several years. The 34% surge partly reflects Wencor synergies and exceptional commercial aerospace demand—unlikely to repeat at that magnitude. Still, double-digit EPS growth from a company of this quality and scale deserves recognition.

Are Net Margins Increasing?

Rating: 8/10

Net margins expanded to 15.4% in fiscal 2025 from 13.3% the prior year—meaningful improvement for an industrial business. Operating margins reached 22.7%, up from 21.4%. Management attributes gains to operating leverage, Wencor synergies, and disciplined cost management across the decentralized subsidiary structure.

The trajectory is clearly positive, though margins are approaching levels where further expansion becomes harder. HEICO won't become a software company with 40% net margins, but continued incremental improvement appears sustainable.

What's the ROIC Profile?

Rating: 7/10

This requires nuance. HEICO's standard ROIC (including goodwill) runs approximately 13%, respectable but not exceptional. However, return on tangible capital exceeds 29%—elite by any measure.

The gap reflects HEICO's acquisition-heavy growth model. They pay premium prices for quality businesses (creating goodwill), but those acquired businesses generate outstanding returns on the actual operating assets. For long-term holders, what matters is that ROIC substantially exceeds HEICO's cost of capital (estimated 8-9%), confirming genuine economic value creation. The trend has compressed slightly as larger deals command higher multiples, warranting monitoring.

How Much Gets Reinvested?

Rating: 9/10

HEICO is a reinvestment machine. The Mendelsons famously pay a token dividend ($0.22 annually, yielding under 0.1%) because they prefer deploying capital into acquisitions and organic growth. Over the past 15 years, HEICO has redeployed approximately 140% of free cash flow back into M&A.

Fiscal 2025's operating cash flow hit $934 million. Rather than accumulating cash or buying back shares, management immediately identifies new acquisition targets. With over 100 deals completed since 1990 and an active pipeline, the reinvestment engine shows no signs of slowing.

What About Capital Returns to Shareholders?

Rating: 3/10

Minimal, by design. The dividend yield sits at 0.07%—essentially symbolic. Share buybacks are negligible. Management believes capital compounds faster inside HEICO than in shareholders' pockets, and their 35-year track record supports this philosophy.

For income-seeking investors, HEICO is the wrong stock. For compounders who trust the Mendelsons' capital allocation, this approach maximizes long-term total returns.

Is the Valuation Reasonable?

Rating: 3/10

Here lies HEICO's challenge. The stock trades at approximately 65x trailing earnings and 40x EV/EBITDA. A reverse DCF analysis reveals the market is pricing in 12-15% annual earnings growth for the next decade-plus—essentially assuming near-perfect execution.

At current prices, the earnings yield approximates 1.5%, below risk-free Treasury rates around 4%. You're paying premium prices for premium quality, leaving minimal margin of safety. The stock has delivered 33% returns over the past year, potentially pulling forward future gains. Quality compounders deserve premium valuations, but HEICO appears priced for perfection rather than attractive.

Scoring HEICO

HEICO represents a textbook quality compounder—family-led, acquisition-savvy, operating in a protected niche with decades of runway. The business deserves nearly every accolade. The valuation, however, already reflects this excellence. Patient investors might consider building positions on meaningful pullbacks rather than chasing current prices. For those already holding, the Mendelson playbook suggests sitting tight and letting compounding work—just don't expect the next decade to match the last at these entry points. The business quality is undeniable. The valuation requires conviction. Right now it sits on my watchlist, which you can access in real-time in our community.

Would you like to stay ahead of opportunities like this? Join our community where we share real-time trade alerts and deep-dive analyses of businesses with true competitive advantages. Don't just trade the market - invest in excellence.

Want to receive our trade alerts and detailed analysis in real-time? Join our community of value investors who understand that pricing power is the ultimate competitive advantage. Receive our trade alerts on your phone? Download the app here