Investors could be "significantly" undervaluing CAE stock, a Canadian aerospace training and simulation company, according to Goldman Sachs. In a recent report, the Wall Street investment bank reiterated a buy rating on CAE, which operates two primary businesses: civil aviation and defense. Shares of CAE in the U.
S. have slipped 11% in 2024, but analyst Noah Poponak's 12-month price target of $26 implies that the stock could rally nearly 35% from its Monday close. CAE YTD mountain CAE YTD chart "CAE is the market leader in commercial aviation simulation & training, which is a highly regulated, recurring, and high margin business," the analyst wrote.
"However, the company's defense business, which we forecast will account for only 20% of CAE's total EBIT in the future, has been a drag on profitability as the company has taken charges and highlighted challenged contracts." Poponak noted that valuations for the stock have now pulled back to a "sizable discount" as compared to other peers in the aerospace supply chain, with the analyst's sum of the parts analysis implying the stock is trading nearly 50% below fair value. In the report, Poponak analyzed both CAE's civil aviation and defense businesses in isolation and compared to competitors.
As a catalyst for CAE's civil aviation business, he underlined the company's dominant market share and historical growth profile, which has been above the average in Goldman's universe of aerospace suppliers. "CAE's size is a competitive adva.