CAE's Aerospace and Defense Training Business on Sale Amid Declining Earnings

CAE, a global leader in flight training and simulation, has seen its stock decline despite reporting 2025 earnings. Shares remain up 9.5% since my last report, slightly worse than the S&P 500's gain. The stock has already outperformed the market this year, but investors are cautious about the company's future prospects.

CAE (NYSE: CAE), a global leader in flight training and simulation, reported its Q1 2026 earnings, showing mixed results that have impacted the stock price. Despite a 9.5% increase since the last report, the stock has declined, slightly underperforming the S&P 500’s gain [1].

Earnings Overview

CAE’s Q1 sales rose 2% to nearly $1.1 billion, with 3% growth in Civil Aviation sales and 1% growth in defense and security sales. Gross margins improved from 26% to 28.1%, and operating income increased from $108.6 million to $133.8 million. However, excluding nonrecurring items, the income would have increased 10% rather than 23% [1].

Civil Aviation Segment

The civil aviation segment saw revenues grow 3% to $607.7 million, driven by the consolidation of SIMCOM into the results. However, lower utilization and training demand, along with a less favorable product mix, offset this growth. Adjusted segment earnings rose just 1%, reflecting these dynamics [1].

Defense Segment

The defense segment improved 1%, driven by sales in Canada, partially offset by the conclusion of some programs in the US. Adjusted profits grew 45% to $40.2 million, indicating the transition to higher-margin programs [1].

Market Dynamics

The civil aviation business faced softness due to reduced pilot hiring, with the 13 largest US airlines hiring just 55 pilots. Business jet demand remained robust, and CAE expects airplane delivery delays to turn into a tailwind in the second half of the year [1].

Defense Opportunities

Defense budgets are expanding, and CAE is well-positioned to benefit from this growth, with an adjusted backlog of $11.1 billion and a book-to-bill ratio of 1.25x. Training services are exempt from tariffs, and training devices are USMCA compliant [1].

Price Target Adjustment

The Aerospace Forum has reduced its price target for CAE from $34 to $33.37 USD, driven by a 2% reduction in expected EBITDA and a 10% reduction in free cash flow for 2026. Despite this reduction, CAE is expected to grow EBITDA by 8% annually through 2028 and free cash flow by 9% annually [1].

Conclusion

CAE's Q1 2026 earnings reflect near-term softness in the commercial market, driven by macroeconomic uncertainty and airplane delivery delays. However, the company’s defense business shows promising growth, and the long-term trends in end markets remain bright. Investors should monitor CAE’s performance as it navigates these dynamics.

References

[1] https://seekingalpha.com/article/4816289-cae-aerospace-and-defense-training-leader-on-sale