Next-Gen Electrification And Connectivity Will Transform Air Travel

Key Takeaways

• Aircraft production increases and high-margin price gains are expected to drive revenue growth and structural margin improvement above historical levels.
  
• Strategic exits from low-margin segments and investments in electrification position the company for long-term margin expansion and outpaced growth in key markets.
  
• Reliance on a few key aerospace customers, operational challenges, global supply chain issues, lagging R&D, and sectoral uncertainties all threaten revenue stability and competitiveness.

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.

• While analyst consensus anticipates robust growth from aircraft production rate increases, the company now indicates that rate hikes for major platforms like the Boeing 737 may exceed prior expectations, with monthly shipsets potentially rising to the low 40s by year-end-a step-change likely to drive even greater-than-expected revenue acceleration and strong operating leverage into 2026.
  
• Analysts broadly agree retrofit activity and airline fleet renewal will support recurring revenue, but management's commentary highlights accelerating, high-margin price increases secured with both OEMs and airlines, pointing to a structural uplift in net margins substantially above historical averages.
  
• Astronics' early exit from low-growth, low-margin segments, along with aggressive simplification of its cost structure and facility footprint, is setting the stage for a multi-year margin expansion cycle and freeing up capital for further investment or share buybacks, with visible benefits to both free cash flow and earnings in 2025 and beyond.
  
• Rapidly rising demand for in-flight connectivity and digital passenger experiences is poised to create an inflection point for Astronics' power and wireless solutions, as airlines race to upgrade cabin technology across both new and existing fleets-supporting a long runway for outpaced revenue growth in markets where Astronics holds leading positions.
  
• The company's strategic investments in advanced electrical systems and lightweight, efficient technologies uniquely position it to capture disproportionately high share in the electrification trend sweeping next-gen and hybrid-electric aircraft, likely boosting its engineered-to-order content per plane and driving margin-accretive revenue mix shifts for several years.

Astronics Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Astronics compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Astronics's revenue will grow by 4.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.5% today to 6.7% in 3 years time.
• The bullish analysts expect earnings to reach $63.6 million (and earnings per share of $1.64) by about September 2028, up from $-3.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 33.9x on those 2028 earnings, up from -371.0x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 34.4x.
• Analysts expect the number of shares outstanding to grow by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.

Astronics Future Earnings Per Share Growth

Risks

• Astronics' dependence on a concentrated set of aerospace OEMs such as Boeing and Airbus, as well as major airlines, exposes the company to the risk of contract losses or reduced purchasing in the event of weaker aerospace demand or a shift in industry procurement, which may negatively affect revenue stability and future revenue growth.
  
• The ongoing operational challenges highlighted by repeated restructuring charges, facility closures, and substantial adjustments to long-term contracts-such as the recent estimated cost of completion charge in the Test segment-signal persistent risks of inconsistent profitability, which could lead to continued pressure on net margins and impair investor confidence in long-term earnings growth.
  
• Heightened tariff impacts and global supply chain disruptions, including those tied to geopolitical instability and new trade restrictions (notably annualized tariff costs of $15 million to $20 million), could increase input costs and erode gross margins, especially as mitigation strategies remain uncertain and price increases are met with resistance by customers.
  
• The decision to discontinue further development of satellite antenna product lines, due to low market share and the evolving landscape from geosynchronous to low earth orbit satellite networks, shows that Astronics may be lagging in next-generation R&D investment, which raises the risk of product obsolescence and decreased competitiveness, potentially reducing future revenues.
  
• The slow recovery and unpredictability of the Test segment, paired with historically weak margins and dependence on major programs like the U.S. Army 4549/T radio test program (which faces ongoing delays due to external certification requirements), highlight the vulnerability of a portion of Astronics' business to sectoral slowdowns and stringent regulatory hurdles, putting both revenue and operating margins at risk over the long term.

Valuation

• The assumed bullish price target for Astronics is $49.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Astronics's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $49.0, and the most bearish reporting a price target of just $32.75.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $950.5 million, earnings will come to $63.6 million, and it would be trading on a PE ratio of 33.9x, assuming you use a discount rate of 7.9%.
• Given the current share price of $39.06, the bullish analyst price target of $49.0 is 20.3% higher.
• 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.