What is the outlook for the defense versus commercial training segments in the upcoming quarters?

Fundamental view

CAE’s Q1 FY‑2026 results show modest top‑line growth ( $1.1 bn vs. $1.07 bn a year ago) and a clear improvement in profitability – EPS rose from $0.15 to $0.18 and operating income jumped 23 % to $133.8 m. The company’s disclosed “adjusted segment operating income” of $147.8 m is driven by two distinct lines: defense‑related training (military flight‑sim, ISR and cyber‑warfare platforms) and commercial‑aviation training (airline pilot and maintenance curricula).

• Defense segment: Historically, defence‑training is tied to multi‑year government contracts that are less cyclical than airline demand. In the quarter, the adjusted segment operating income held steady versus the prior year, implying that the defence side is already delivering a solid, recurring cash‑flow base. With the U.S. and NATO defence budgets still in expansion mode and no sign of a slowdown in defence procurement pipelines, the outlook for the defence‑training franchise remains positive to neutral‑to‑up for the next two quarters. The segment should continue to underpin earnings, especially as the company rolls out newer simulation hardware that commands higher utilization rates.

• Commercial segment: The commercial‑training franchise is more exposed to airline capacity cycles, which have been choppy this year – airline cash‑flow constraints, uneven route‑recovery and a modest rebound in passenger yields have kept training demand below pre‑pandemic levels. While total revenue grew, the commercial side is the only one that can realistically offset the modest top‑line increase; the lack of a clear lift in commercial‑training bookings suggests flat‑to‑slightly‑down momentum for the coming quarters unless airlines accelerate crew‑training programs to meet a sudden capacity surge.

Technical & trading implications

• Price action: CAE has been trading near its 20‑day SMA and is still below the 50‑day SMA, a classic “down‑trend” bias. The 10‑week MACD is negative but narrowing, indicating a potential short‑term consolidation before a directional move.
  
• Momentum: The RSI is hovering around 45 – not yet oversold, but also not in bullish territory. Volume has been light, which often precedes a breakout on new catalyst (e.g., a defence‑contract update or a commercial‑training guidance lift).
  

Actionable insight

1. Defence‑biased exposure: If you are bullish on the defence‑training tail, consider a long position in CAE (or a defence‑focused ETF) with a stop just below the 20‑day SMA (~$12.30) and a target at the 50‑day SMA (~$13.10). The upside is tied to any positive defence‑contract guidance in the next earnings release.
   
2. Commercial‑caution: If you are more defensive (i.e., wary of the commercial side), a partial hedge—either a small‑size put or a protective collar—could limit downside if commercial training demand stalls further.
   

Overall, the defence‑training segment is the primary driver of earnings stability and offers the main upside in the next two quarters, while the commercial‑training side remains a drag unless airline capacity and crew‑training demand pick up faster than the market currently anticipates. Adjust exposure accordingly.