Wall Street sees more gains ahead for this SpaceX supplier
As investors enter the space trade via Elon Musk’s SpaceX, Wall Street analysts believe that Applied Aerospace & Defense is poised for gains. The defense supplier went public earlier this month , created through a merger between Applied Aerospace Structures and PCX Aerosystems. Applied Aerospace & Defense raised $650 million in its initial public offering, pricing shares at $20 each. Shares ended last Friday at $20.53, up more than 2% from the IPO price. AADX 1M mountain AADX 1M chart Bank of America Securities and RBC Capital Markets were among the book-running managers for the offering, while Baird, Stifel and Wolfe | Nomura Alliance were book runners. Following a blackout period, on Monday a slew of Wall Street shops initiated their coverage on Applied Aerospace & Defense at an outperform- or buy-equivalent rating. “The company fills the niche of a mid-tier 100% defense-focused supplier with deep material science expertise and broad customer exposure,” wrote Wolfe Research analyst Myles Walton. “In a period where the defense industry wants to scale production as quickly as possible, Applied has established themselves as a trusted provider with the capacity and manufacturing expertise to do so, making it an appealing partner for customers whose growth is otherwise limited, and that should drive a mid-teen organic sales growth and 20% EBITDA growth in the next few years.” Here’s what analysts at some of Wall Street’s biggest banks had to say about the stock. Wolfe Research: outperform, $23 price target Wolfe’s price target implies an upside of 12% ahead, based on Friday’s close. “AADX checks a lot of the right thematic boxes for a defense supplier with exposure to space launch, defense aviation (both old gen rotorcraft and new gen [collaborative combat aircraft]), and precision strike and tactical missiles. As a result, mid-teens growth over the next few years should be an achievable aspiration. Margins today are solidly 20%+, and AADX’s significant process IP, expertise in material science, and contract selection (intentionally 0% commercial aero) should allow for modest margin expansion despite the lack of product IP.” Bank of America: buy, $24 price target The bank’s forecast is roughly 17% above Friday’s close. “AADX is a provider of critical subsystems supporting platforms including rotary and fixed wing tactical aircraft, missiles, munitions, radars, and space systems and launch vehicles, aligning AADX to US and allied national security priorities. We forecast 14% revenue growth [compound annual growth rate] (2025A-2030E) and ~350bps of margin expansion by 2030E given multiple growth vectors and operating leverage. The 23x multiple is in line with space- and defense-exposed suppliers and a 1.7x premium to S & P 500 given growth prospects.” RBC Capital Markets: outperform, $24 price target “AADX is a supplier of complex, mission-critical subsystems within defense and space markets. We view AADX as a higher-quality supplier with a balanced mix of defense aviation and aftermarket, space and launch, missiles/munitions and [U.S. Army Command, Control, Communication, Computers, Cyber, Intelligence, Surveillance and Reconnaissance Center]. We believe the focus for investors is the integration of the newly combined businesses and execution on the organic growth outlook.” Stifel: buy, $24 price target “As the defense industrial base hollows out (company count down ~22% since 2017), we believe AADX’s strengthened balance sheet positions it to deploy 5% of revenue into growth capex and accretive bolt-on M & A. We also expect incremental upside from larger capital investments or a steeper post-Epic Fury munitions replenishment cycle.” Baird: outperform, $30 price target The firm’s forecast is 46% above the stock’s Friday closing price. “We are entering a Cold War 2.0 era, led by ramping Capex, the emergence of neo-Primes, and record [Department of War] budgets. Gone are the days of serial underinvestment across the military industrial complex, reliance on cost-plus contracting, and ~40% of procurement dollars going to five companies. AADX should be a major beneficiary of rebuilding the Arsenal of Freedom, with a proven track record of delivering high-consequence complex sub-systems at scale.”
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