UBS analyst Fadi Chamoun increased his target price for CAE Inc. (CGT), the world’s largest full-flight simulator manufacturer, to C$17 from C$16. The boost is a result of him rolling his valuation basis one quarter forward, while holding onto his 20 times price/earnings multiple, he said.
“While a 20 times PE multiple may be difficult to fathom at this point in the aerospace cycle,” Mr. Chamoun said in a note, “we note that all the leading indicators for aircraft orders continue to be firmly in positive territory (both in commercial and business aviation).”
Full-flight simulator sales are directly linked to new plane orders, and on a combined basis, Airbus and Boeing (NYSE:BA) have recorded 1,296 new plane orders to date this year. In addition, there are currently 664 commitments announced that are expected to become firm orders, Mr. Chamoun noted.
“[CAE’s] earnings growth is projected to exceed 19% per year through at least fiscal 2011 while balance sheets will become debt free by the end of the fiscal year,” he said.
This leaves the company with substantial cash resources to reinvest in value creating opportunities and reward shareholders.
CGT 1-yr chart: