This SpaceX supplier has a front-row seat to major shifts in warfare and rocket use
Although this recent IPO is trading below its offer price, its supplier relationships with both SpaceX and Anduril bode well for future revenue growth.
TL;DR
- Applied Aerospace & Defense's stock fell below its IPO price due to a reported second-quarter loss, largely caused by non-recurring IPO-related expenses.
- The company's underlying business shows strong growth, with adjusted EBITDA up 38.5% and revenue up 47.4% year over year, excluding one-time charges.
- Applied Aerospace has strategic positions in space and launch systems (23% of revenue), defense aviation (30%), and C5ISR/precision strike platforms (47%), with 87% of revenue from sole-source contracts.
- About a third of revenue comes from long-life aftermarket and sustainment programs, providing revenue visibility and a recurring stream.
- Key partnerships with defense innovator Anduril Industries and space-launch leader SpaceX position the company for future demand increases.
- The company has significant excess manufacturing capacity (40%) and a reduced debt load post-IPO, enabling it to service a large backlog without immediate capital expenditure.
- A potential risk is the increase in unbilled receivables, which temporarily constrains operating cash flow, but is expected to normalize.
- The stock trades at a lower valuation multiple compared to peers like TransDigm and HEICO, despite comparable sole-source revenue mixes and faster growth.
- Analysts generally recommend a 'buy' rating with price targets significantly above the current stock price.