Heroux-Devtek Swings a Profit in Q1

Heroux-Devtek (HRX) swung from a loss to a profit in its first quarter of Fiscal Year 2022, despite a slight decrease in revenue. The Canadian company based in Longueuil, Quebec, specializes in the manufacture and repair of various industrial, energy, and aerospace components.

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Consolidated sales decreased 1.6% to C$126.2 million, down from C$128.3 million in the prior-year quarter. Defence sales rose 21.5% while Civil sales decreased 19%.

Meanwhile, the company earned an operating income of C$10.8 million in Q1 2022, compared to C$1.4 million in Q1 2021. Adjusted EBITDA amounted to C$20 million (15.9% of sales), compared with C$18.4 million (14.3% of sales) last year. (See Heroux-Devtek stock charts on TipRanks)

Net income was C$6.7 million (C$0.19 per share) in Q1 2022, compared to a loss of C$1.3 million (-C$0.04 per share) in Q1 2021.

On an adjusted basis, earnings increased from C$0.09 to C$0.19 per share.

Heroux-Devtek president and CEO Martin Brassard said, “I am encouraged with our first quarter results with sales at $126.2 million, supported by continued growth in our defence sales which mitigated softness in the civil sector as well as head winds coming from foreign exchange. I am confident that we can deliver stronger throughput as our production system is continuing to adapt to the changes we made over the past year.

“We continue to see the future with prudent optimism given our diversified product portfolio and the flexibility we can derive from our strong financial position. Once the civil aerospace market recovers, we will be ready to absorb the resulting growth within our current production structure.”

In May 2020, Heroux-Devtek announced it would launch a normal course issuer bid. As of August 9, 2021, Heroux-Devtek has purchased and canceled a cumulative number of 672,827 common shares for a cash consideration of C$11.9 million, which represents a weighted average price of C$17.69 per share.

Three months ago, Scotiabank analyst Konark Gupta maintained a Buy rating on HRX while raising its price target to C$22.50 (from C$22.00). This implies 24.4% upside potential.

Overall, consensus on the Street is that HRX is a Strong Buy based on three Buys. The average Heroux-Devtek price target of C$21.83 implies 20% upside potential to current levels. Shares have gained more than 60% over the past year.