Record Aerospace Bookings And Operational Savings Will Secure Lasting Performance

Key Takeaways

• Record bookings and strong Aerospace performance indicate potential for sustained revenue growth and improved earnings.
  
• Operational improvements and cost-saving initiatives are expected to boost profitability and margins.
  
• The company faces financial challenges from tariffs, operational issues in the Test segment, legal liabilities, and high capital expenditures, impacting margins and cash flow.

Catalysts

Through its subsidiaries, designs and manufactures products for the aerospace, defense, and electronics industries in the United States, rest of North America, Asia, Europe, South America, and internationally.

• Astronics has achieved record bookings in the first quarter, with significant orders like the $57 million FLRAA development effort, indicating potential for sustained revenue growth.
  
• The Aerospace segment's performance was particularly strong, with new records in revenue, bookings, and backlog, showing potential for further margin expansion and improved earnings.
  
• Implemented operational improvements, enhanced workforce efficiency, and supply chain advancements are driving steady performance gains, which could lead to increased net margins.
  
• Test segment cost-saving initiatives, anticipated to realize $4 million to $5 million in annual savings, are expected to boost profitability and earnings in the latter half of the year.
  
• Capital expenditures for facility consolidation and capacity expansion aim to support long-term growth, potentially increasing revenue and operational efficiency over time.

Astronics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Astronics's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.4% today to 5.4% in 3 years time.
• Analysts expect earnings to reach $50.2 million (and earnings per share of $0.95) by about May 2028, up from $-3.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.6x on those 2028 earnings, up from -271.3x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 33.2x.
• Analysts expect the number of shares outstanding to grow by 1.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

Astronics Future Earnings Per Share Growth

Risks

• The tariff regime rollout by the administration presents macroeconomic concerns. The uncertain nature of tariffs could impact the company’s costs, affecting margins and profitability, especially if tariffs are in the $10 million to $20 million range.
  
• The Test segment is showing signs of operational difficulties. Despite cost changes, the segment recorded an adjusted operating loss due to an unfavorable EAC adjustment, which could further impact revenue and earnings if not addressed.
  
• Legal liabilities from the U.K. litigation matter continue to be a financial burden, with unresolved potential legal fee reimbursements that could further strain cash flow and impact net margins.
  
• The need for elevated capital expenditures between $35 million to $50 million for facility consolidation and capacity expansion could pressure free cash flow in the short term, affecting liquidity and financial flexibility.
  
• Uncertainty regarding tariff obligations and indirect tariff impacts from domestic suppliers could increase costs, harm supplier relationships, and potentially affect revenue, as the company still needs to confirm the full scope of its indirect tariff obligations.

Valuation

• The analysts have a consensus price target of $25.743 for Astronics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $23.23.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $926.9 million, earnings will come to $50.2 million, and it would be trading on a PE ratio of 22.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $26.85, the analyst price target of $25.74 is 4.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.