ARXS: Pushing it to the EDGE: Initiating coverage at Sector Perform, $39 price target

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ARXS: Pushing it to the EDGE: Initiating coverage at Sector Perform, $39 price target

1.4E 496.6E 498.6E 483.3E

while ARXS is an industrial company that happens to have significant A&D EBITDA, Adj

exposure, lingering concerns on the pace of defense budget growth will be 2025 135.4A 154.0A 157.8A 129.5A

2026 157.4E 176.1E 178.5E 171.4E a headwind to sentiment, in our view. 2027 177.6E 195.8E 198.7E 192.5E

The mid-term ~9% revenue growth framework is conservative. We model All values in USD unless otherwise noted.

~5% volume growth (defense up ~6%, aerospace up ~7%, and industrial Priced as of prior trading day's market close, EST (unless otherwise noted).

volume growth of ~2%) with pricing adding another ~2% and new business

an additional 2%-3% to the revenue outlook. The organizational structure

(EDGE operating approach) supports the new business assumptions. ARXS

has just ~15% of revenues covered by LTAs, and ~90% of its products are

proprietary, supporting its pricing opportunity. The F-35 is ARXS's largest

defense program, which will weigh on growth, but otherwise ARXS is largely

market weighted in its program exposure. The pricing dynamic is consistent

between OE and AM sales. We agree that ARXS's new business approach is

unique and should support ongoing share gain opportunities, with better

pricing than in our model a potential source of upside.

M&A will remain a focus for investors. The company has an impressive

M&A track record, completing 32 acquisitions since 2019, and calls out a

robust opportunity pipeline, indicating that it expects to continue on its ~5

deals/year pace. In our view, M&A represents the most significant upside

opportunity for ARXS, and the continued involvement of Arcline in the

process for larger transactions is a positive.