Structurally linked to booming space and defense demand; Initiate at Buy, PO of $24

Research evidence excerpt

Structurally linked to booming space and defense demand; Initiate at Buy, PO of $24

Investment thesis

We initiate coverage of Applied Aerospace & Defense (AADX) with a Buy rating and a

price objective of $24. Applied Aerospace & Defense is a provider of complex, mission-

critical subsystems supporting space and defense programs. The company operates in

three segments: Space & Launch Systems, where the company supplies satellite and

launch vehicle assemblies, subsystems, and structures; Defense Aviation & Airborne

Systems, supplying wings and control surfaces, fuselage and fairing assemblies,

powertrain components, landing gear, and other subsystems; and C5ISR and Precision

Strike Systems, supporting radar and missile systems with antennas, radomes and

enclosures, launch tubes, solid rocket motor assemblies, and other systems. AADX is

differentiated by its IP-enabled manufacturing capabilities and long-term, often sole

source relationships with key customers.

Our PO of $24 is derived by a 23x EV/EBITDA multiple on 2027E estimates. The 23x

multiple is above its peer group average (see Comp Sheet) and reflects a 1.7x relative

multiple vs. the S&P 500. We see the premium as fairly reflecting AADX’s favorable

program exposure and strong positioning across existing programs.

Upside risks to our PO

Upside risks to our PO are US and global defense spending, particularly within space,

missiles and munitions, and next gen aircraft systems, growing above expectations,

better-than-expected margin expansion, proliferation of commercial market

opportunities mainly through commercial space programs, and realization of potential

synergies from M&A ahead of schedule.

Downside risks to our PO

Downside risks to our PO are production delays, execution issues, or supply chain