HEICO (HEI -8%), an aerospace component and electronics supplier, saw its stock drop today as its Q4 revenue fell short of analyst expectations. The company's bottom-line beat was also slimmer compared to the previous quarter, contributing to the negative sentiment. Despite a +6% rise over the past three months, reaching +13% last month, the stock's top-line miss was disappointing.

In Q4, HEICO's revenue grew by 8.2% year-over-year to $1.01 billion, a sharp decline from the 37.3% growth in Q3. However, there were several positive aspects:

• HEICO's Flight Support Group (FSG) segment saw a 15% year-over-year sales increase to a record $691.8 million, driven by broad-based demand and acquisitions. Excluding M&A, organic growth was 12%. The FSG segment benefits from increasing commercial flights and significant U.S. government contracts, focusing on defense and space, which are crucial for HEICO's strategy.
• In contrast, the Electronic Technologies Group (ETG) segment experienced a 1.8% decline in sales to $336.2 million due to fluctuating government contract revenues and ongoing inventory destocking among some customers, affecting growth in non-aerospace and defense markets.
• The Wencor Group acquisition, operating independently, exceeded expectations in Q4, contributing positively to sales, earnings, and margins. Management anticipates further revenue synergies from Wencor's success.
• Looking forward, HEICO is optimistic about returning to growth in the ETG segment in the first half of FY25. The FSG segment is also expected to grow, supported by strong demand and a pricing strategy below OEMs, which may benefit from potential budget cuts by the new administration. The Department of Government Efficiency (DOGE) division is seen as a promising opportunity.

Despite missing Q4 sales expectations and having the slimmest earnings beat since 3Q23, HEICO remains optimistic about its future. The company anticipates a rebound in the ETG segment and further growth in the FSG segment in FY25. The DOGE division offers a significant opportunity due to potential U.S. government budget cuts, making HEICO a stock to watch.