Inside HEICO’s Fiscal 2025
A 29% tangible ROIC, why the "Berkshire of Aerospace" justifies its premium, and where to find the 20% "A-Share" discount.
Hi everyone 👋
For this post we tried to do something a bit different - a hybrid fiscal update plus a mini deep dive. Let us know what you think of this format. There is also no paywall, so feel free to share it! Happy Compounding! 📈
If you have held shares of HEICO Corporation (NYSE: HEI / HEI.A) for any significant length of time, you are likely sitting on a mountain of gains. This is a stock that has compounded at roughly 20% annually for decades, turning a modest industrial parts manufacturer into a $40+ billion industrial titan.
Fiscal 2025 year-end results were released after market close on December 18, 2025, and the business continues to perform exceptionally well. The stock is also priced for perfection.
In this post we are going to dissect HEICO’s latest quarter, calculate the true return on invested capital the company is generating today (both with and without goodwill), and address the elephant in the room: a valuation that may make even a software investor blush. We will also discuss why, despite the nosebleed valuation, selling now might be a mistake.
Table of Contents:
Headlines for Fiscal 2025
HEICO is often described as the “Berkshire Hathaway of Aerospace” due to its decentralized structure and acquisition-led growth. Fiscal 2025 results confirm that the machine is still humming.
For the fiscal year ended October 31, 2025, HEICO delivered:
Net Sales: $4.49 billion, up 16% year-over-year.
Net Income: $690.4 million, up 34%.
Operating Margin: Expanded to 22.7% (from 21.4% in 2024).
Cash Flow: A staggering $934.3 million in operating cash flow, representing 135% of net income.
One thing that is often overlooked though is the organic growth that HEICO can produce. The company is not just buying growth. In the fourth quarter, the Flight Support Group (FSG)—HEICO’s largest segment—reported 16% organic growth. Even if they did no acquisitions this year, their core business of selling replacement aircraft parts grew by double digits.
For a long-only holder, this is the validation you wait for. The commercial aerospace “super-cycle” is in full swing. As manufacturing advances, planes have a longer useful life, and airlines are flying older planes longer.
Why HEICO Wins
As we start this call, Eric and I would like to take a moment to remember our father, Larry Mendelson, whom you all know was long HEICO's Chairman and CEO. As sons, we were beyond blessed to have a unique and loving father who instilled in us from our earliest days, values and life methods based on fairness, on excellence, on quality. And as our father used to say, just doing the right thing. Of course, these values and life methods apply in business, too. - Victor Mendelson Co-CEO, Co-President & Co-Chairman of HEICO, Q4 2025 Earnings Call
HEICO is using its Power to create win-win outcomes for itself and its customers, rather than cornering the market and price gouging (Force) to generate economic returns. We break down further what exactly this means in the post below.
But I think the other thing that’s been really good is the value proposition that HEICO offers our customers. The thing that perhaps I’m most proud about is that we’ve had 16% organic growth in this quarter and another 5% acquired on top of that for a total of 21% sales growth, but operating income increased 30%.
And at the same time, our customers are incredibly happy in getting huge value from us. So we’ve been able to drive operating income, if you will, primarily off of the organic sales growth, and our customers are still very happy. - Eric Mendelson Co-CEO, Co-President & Co-Chairman of HEICO, Q4 2025 Conference Call
Segment 1: Flight Support Group (FSG) and the FAA-PMA Moat
The core of the business is “PMA” (Parts Manufacturer Approval). In plain English, HEICO reverse-engineers parts made by original equipment manufacturers (OEMs) like Honeywell or Collins Aerospace. They then go to the FAA, prove their part is just as good (or better), and get a license to sell it.
Historically, the useful life of a commercial jet liner was 20-25 years, and now it’s not uncommon for jets to fly for 30+ years. Every extra month an old plane flies is a windfall for HEICO, which supplies the replacement parts - at fair prices - that are needed to keep them airworthy.
FSG is a “flow” business, driven by utilization. Every time a plane takes off, parts wear out. With airlines flying older planes longer, the consumption of replacement parts is immediate and continuous. This creates an ongoing demand of parts that continues to exist, so long as planes are flying.
Made by author from company filings
FSG is the crown jewel. In Q4 2025, sales surged 21% to $834.4 million. This segment has now achieved 21 consecutive quarters of sequential growth. Through pandemics, wars, and supply chain crises, this business just keeps getting bigger.
The 16% organic growth in Q4 2025 was driven by broad-based demand across all product lines. Inflation has allowed HEICO to raise prices. Because their parts are already significantly cheaper than OEM alternatives, they have headroom to increase prices without eroding their value proposition to airlines. Regardless, they always prioritize relationship over price increase, so they generally do not tap the full extent of their pricing power, intentionally. We appreciate this, as the relationship is the most important driver in the long term.
“So the concerns we have around here really are labor inflation, and we seem to be getting enough price out of our customers to cover that and still provide them with great value and make them feel like the value proposition is huge with HEICO to do business with us.” Carlos Macau Executive VP, CFO & Treasurer HEICO - Q4 2025 Conference Call
Further, the acquisition of Wencor (completed in 2023) continues to pay dividends. Wencor expanded HEICO’s distribution capabilities and added complementary PMA parts. The continued strong performance suggests that integration risks have been successfully managed.
Margin Expansion Mechanics
The expansion of FSG’s operating margin to 24.1% is an important data point. Historically, there has been concern that as HEICO grew larger and acquired lower-margin distribution businesses (like Wencor), margins might dilute. The recent results refute this.
The margin expansion was attributed to “net sales growth within the Flight Support Group’s repair and overhaul parts and services product line” and a “more favorable product mix within its specialty products product line”.
The sheer volume of parts moving through the system allowed for SG&A efficiencies. The fixed costs of regulatory compliance and engineering are being spread over a much larger revenue base - HEICO is flexing their operating leverage and it’s showing.
A Game Changing Acquisition?
Looking ahead to 2026, the FSG is poised for a strategic expansion. In December 2025, HEICO announced the acquisition of EthosEnergy Accessories and Components.
This acquisition moves FSG into the repair of Industrial Gas Turbine (IGT) components. These turbines are used in industrial power generation. The press release explicitly mentions supporting “fast-growing global energy demand fuelled by the AI revolution”. Data centers require massive amounts of reliable power, often provided by on-site gas turbines. By expanding into this market, HEICO is further diversifying into the energy sector, leveraging its existing core competency in turbine component repair. This is a significant strategic evolution that could accelerate growth for the next decade.
“And as far as Ethos, we really like the IGT area. We've been in the IGT area through a number of our businesses for a number of years, for decades. And we like growing, as we say, into adjacent white spaces where we understand the technology, whether it's the engineering or the operations of the turbine, whether it's the manufacturing or the repair technology distribution.” - Eric Mendelson Co-CEO, Co-President & Co-Chairman of HEICO - Q4 2025 Earnings Call
Segment 2: Electronic Technologies Group (ETG)
While the Flight Support Group (FSG) focuses on replacement parts for commercial aircraft (the “aftermarket” business), the ETG is HEICO’s engineering powerhouse. It designs and manufactures mission-critical, high-reliability subcomponents.
These components have end markets in Defense, Space, Aerospace, and Medical markets. Specifically, these are not commodity electronics. They are components that must work in extreme environments (e.g., the vacuum of space, high-G missile launches, or inside a human body).
If FSG is a “flow” business, then ETG is a "program" business, driven by procurement cycles. Defense contractors and satellite builders order components in batches for specific programs (e.g., a lot of 50 missiles or 5 satellites). These orders are lumpy. Even if the defense budget is up, the actual timing of orders can slip from one quarter to the next, causing volatility that doesn't exist in the steady "flow" of the FSG aftermarket business.
ETG had a solid, though more challenging, year compared to the explosive growth in FSG. The segment achieved 7% organic growth for the year. This was driven by strong demand in defense and space but was dragged down by weakness in the medical sector (“de-stocking by medical device customers”).
Made by author from company filings
Major ETG Acquisitions in Fiscal 2025
HEICO used its cash flow to aggressively expand ETG’s capabilities in Fiscal 2025, completing three key acquisitions that fit its “niche and sticky” criteria:
SVM Private Limited (Nov 2024): A specialist in electronic components, acquired through HEICO’s Exxelia subsidiary to expand its footprint in India and high-reliability passives .
Rosen Aviation (April 2025): A leader in aviation displays and cabin electronics. This was acquired by HEICO’s Mid-Continent Controls subsidiary, expanding their presence in the pilot cockpit and passenger cabin .
Gables Engineering (July 2025): A significant acquisition of a premier manufacturer of avionics controls (e.g., radio and audio control panels). Gables has products found on nearly every major aircraft platform.
Cash and Liquidity Dynamics
“…we are laser-focused on cash generation at each of our businesses. I am very happy with the continued expansion of our cash margins and believe the decentralized operating structure has permitted us to expand these margins while simultaneously delivering high-quality products and services to our customers at substantial cost savings with lightning quick turnaround times.” - Eric Mendelson
Co-CEO, Co-President & Co-Chairman of HEICO - Q4 2025 Conference Call
The ability to generate cash is the fuel for HEICO’s acquisition engine. Fiscal 2025 was a standout year for cash generation.
Their operating cash flow of $934.3 million significantly exceeded net income of $690.4 million. This represents a cash conversion ratio of approximately 135%.
This high conversion is typical for HEICO and is driven by significant non-cash charges, primarily depreciation and amortization ($196.1 million in FY 2025). Because HEICO has done 110 acquisitions, it carries significant intangible assets on its balance sheet. The amortization of these intangibles reduces reported net income (and taxes) but does not impact cash flow, resulting in superior cash generation relative to reported earnings. This has allowed the company to fund five acquisitions, pay dividends, and still reduce its leverage ratios significantly.
Balance Sheet Strength and Deleveraging
HEICO was able to drop the Net Debt to EBITDA ratio from 2.06 to 1.60x at the end of Fiscal 2025. Typically, industrial acquirers may spike leverage to 3.0x or 4.0x following a major deal (like the Wencor acquisition in previous years). Bringing leverage down this quickly demonstrates the cash-generative nature of the acquired assets. This low leverage ratio acts as “dry powder,” signalling to the market that HEICO has the balance sheet capacity to pursue large-scale acquisitions in Fiscal 2026 without needing to issue equity or over-leverage the company.
“When you look at our leverage out roughly 1.5x, I mean, we've got tremendous ability to make acquisitions. I mean, when we generate, what was the number, $934 million from operations. I mean, the cash is really very, very strong. And we're able then to take that cash and go buy other entrepreneurial businesses where people want to be part of HEICO.” - Eric Mendelson
Co-CEO, Co-President & Co-Chairman - Q4 2025 Conference Call
The Litmus Test: Return on Invested Capital (ROIC)
For a compounder, earnings growth is vanity; ROIC is sanity. We need to know if HEICO is actually creating value with the capital it deploys.
Because HEICO grows in part by acquisition, its balance sheet is loaded with Goodwill (the premium paid for businesses). Calculating ROIC both with and without goodwill tells us two different stories: one about capital allocation efficiency, and one about operating efficiency.
Key Data (Fiscal 2025):
NOPAT (Net Operating Profit After Tax): ~$850.25 million (derived from $1,019M Operating Income and ~16.6% tax rate).
Goodwill: $3.66 billion (2025) / $3.38 billion (2024).
Scenario A: Standard ROIC (Including Goodwill)
This measures how well management allocates capital. It penalizes them for paying high premiums for acquisitions.
Average Invested Capital (Debt + Equity + NCI - Cash): ~$6,463.8 million.
ROIC = 13.15%
13.15% is a solid result, well above the Cost of Capital (WACC ~8-9%). It confirms that even when paying full price for targets, HEICO creates economic value. However, this metric has compressed from the 15-20% range seen a decade ago as deals get larger and more expensive.
Scenario B: Tangible ROIC (Excluding Goodwill)
This measures the raw operating efficiency of the businesses HEICO owns, ignoring the premium paid to buy them. It essentially asks, “How good are the underlying factories and assets?”
Average Invested Capital (Tangible): ~$2,942.8 million.
(Calculated by subtracting average Goodwill of $3.52B from the Total Invested Capital).
ROIC = 28.89%
A ~29% return on tangible capital is elite. This explains why HEICO is willing to pay high multiples for acquisitions. The underlying businesses are incredibly capital-efficient, requiring very little reinvestment to grow. This massive spread between Standard ROIC (13%) and Tangible ROIC (29%) is the hallmark of a high-quality “rollup”—they pay a premium upfront (Goodwill) to acquire assets that print cash with minimal maintenance (High Tangible ROIC).
The Valuation: Priced for Perfection
HEICO is expensive, and the market has priced it for perfection.
The Bull Case relies on HEICO having a decades-long runway. They have less than 10% market share in a fragmented market. They have pricing power that beats inflation. They are expanding into other replacement part verticals (turbines)
The Bear Case: The earnings yield is roughly 1.5%. You can get ~4% in a risk-free Treasury bond. By owning HEICO, you are accepting a negative risk premium today in exchange for growth tomorrow. If that growth slows from 16% to 10%, the multiple could compress to 30x or 40x. That would cut the stock price in half even if earnings keep growing.
Running a DCF with ValuationBot.AI yields the following fair value:
Run on December 19, 2025
We think the Bot provides an uber bear case (management targets ~ 15-20% bottom-line growth) and reiterated on the conference call they don’t see that slowing anytime soon. Regardless it does show how substantially priced the shares are.
“We've done for 35 years, compounded our bottom-line at 18%. So we've proven that we can do it. Every year, we sit down, we do our budgets, we look at the performance, the atmospherics in the markets, and we shoot for 15%, 20% bottom line growth. And we're capable of doing that.” - Carlos Macau Executive VP, CFO & Treasurer of HEICO - Q4 2025 Earnings Call
The A Share Opportunity
There are two opportunities for the HEICO shareholder:
HEI (Common Stock): ~1 vote per share. Trades at ~70x Earnings
HEI.A (Class A): ~1/10th vote per share. Trades at ~55x Earnings.
Unless you plan on launching a hostile takeover of the Board (said tongue in cheek), the voting rights are less important.
“In fact, you may notice that when we recently bought shares, our directors, purchase shares every year equal to a certain portion of their retainer. When they bought the shares, they all bought, I think, Class A common shares. That really is a screaming value. I think over time, a rational market will recognize that and push them together.” - Victor Mendelson Co-CEO, Co-President & Co-Chairman of HEICO Q4 2025 Earnings Call
An investor interested in HEICO could consider buying HEI.A over HEI; they would essentially buy the exact same economic engine (same dividends, same earnings) at a ~20-25% discount. However, the gap between HEI and HEI.A has always existed, and it appears to be widening with time.
Made by author
The Verdict
HEICO is a high Quality company, trading at exceptional prices. The underlying business keeps executing, and the Mendelsons continually prove they are wonderful capital allocators. With the underlying organic growth, value additive acquisitions, and expansion into adjacent verticals, the future looks very bright for the company. It is certainly priced that way.
HEICO finished Fiscal 2025 with an A+ on its report card. The market has given it an A++ price tag.
HEICO is a 7% position in our portfolio - we are not buying here, and we are not selling. This is a high conviction company for us, one we want to own for decades more.
Instead, we are going to enjoy the ride and keep our seatbelts fastened while we cruise towards further compounding.
It has been a pleasure to engage with you, and thank you for reading! Happy Holidays everyone and we wish you all the best for 2026.
The Pursuit of Compounding 📈
Disclaimer: We are private investors and not financial advisors. This post is for educational purposes only and does not constitute financial advice. HEICO (HEI) is a stock we currently own. Always conduct your own due diligence before making any investment decisions.
I knew the company by name, but I didn’t realize it had delivered such performance: 22% CAGR over 51 years from the 1974 bottom. That’s truly remarkable.
Great company, great article. It was a pleasure to read.
This article comes at the perfect time after your recent market thoughts, and I'm eagr to see how you dissect this HEICO valuation, which makes me a tad wary.