A Fresh Look at CAE (TSX:CAE) Valuation After Major WestJet Training Centre Deal and Vienna Expansion

If you have been watching CAE (TSX:CAE) lately, the new 15-year deal with WestJet to build Alberta’s Training Centre of Excellence is the kind of event that could make you rethink your stance on the stock. This is not just a typical client win. CAE will anchor a cutting-edge, 126,000 square foot training facility in Calgary, developed alongside Mount Royal University, aimed at shaping the next wave of aviation professionals. For WestJet, it means dedicated access to pilot and crew training for critical aircraft. For CAE, it cements a long-term customer and opens doors to further R&D partnerships in Canada’s evolving aerospace sector. This WestJet milestone did not happen in isolation. Over the past year, CAE’s stock has climbed an impressive 55%, with additional momentum building through business expansions such as the opening of CAE Vienna, their first Central European business aviation training centre. The share price has reflected that enthusiasm, with modest gains over the past three months and a near 6% increase since the year's start. These moves signal that institutional confidence, perhaps rooted in CAE’s double-digit net income growth, is trending upward, yet the pace seems to have moderated more recently. With so much baked into the current price, investors are left with a key question: can CAE’s new ventures justify even higher valuations, or has the market already priced in all of the company’s future growth?

Most Popular Narrative: 12.9% Undervalued

The most widely followed narrative views CAE as undervalued by nearly 13%. This is based on strong long-term growth prospects in both aviation and defense training, backed by consensus among analysts.

"Accelerating adoption of digital, immersive, and simulation technologies, exemplified by CAE's recent partnerships with Apple and rollout of its Flightscape analytical platform, positions the company to capture new, higher-margin and recurring revenue streams as the industry modernizes and airlines seek efficiency. This has a positive impact on net margins and recurring cash flow."

Want to know what’s fuelling this bullish price target? The secret lies in a blend of ambitious growth forecasts and profit margins that stand out even among aerospace giants. Analysts are betting on game-changing digital adoption and bold earnings improvements to justify that valuation. Curious about the exact assumptions powering this narrative and whether CAE is set to outperform expectations?

Result: Fair Value of CA$42.67 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, some risks remain, including CAE’s high debt and potential slowdowns in civil aviation training demand. These factors could challenge the bullish outlook.

Find out about the key risks to this CAE narrative.

Another View: SWS DCF Model Perspective

Interestingly, our DCF model offers another angle and suggests CAE is undervalued when future cash flows are projected. This result depends on a different set of underlying assumptions. Which valuation seems more convincing to you?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out CAE for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own CAE Narrative

If you have a different take or prefer to dive into the numbers on your own, you can shape your own story in just a few minutes. Do it your way.

A great starting point for your CAE research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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