Defense Demand And Space Contracts Will Create New Revenue Opportunities

Key Takeaways

• Pricing initiatives and demand from the defense sector suggest potential revenue and earnings growth, benefiting operating margins and earnings in the future.
  
• New business opportunities in space contracts and strong commercial aircraft demand could boost future revenue despite existing industry challenges.
  
• Severe flood damage and market uncertainties are pressuring Moog's revenue, impacting both margins and cash flow due to increased costs and production delays.

Catalysts

Designs, manufactures, and integrates precision motion and fluid controls and controls systems for original equipment manufacturers and end users in the aerospace, defense, and industrial markets in the United States and internationally.

• Moog's pricing and simplification initiatives, particularly the 80/20 deployment, are likely to enhance operating margins further, which could lead to improved earnings in fiscal year 2025 and beyond.
  
• Expanding demand in the defense sector, driven by increased European defense spending and ground-based air defense opportunities, could bolster Moog's revenue and earnings growth over the next few years.
  
• The commercial aircraft segment is expected to grow due to continued strong demand and production ramps on multiple platforms, potentially increasing Moog's revenues despite challenges like Boeing's production rate caps.
  
• Successful space contracts, such as those for thrust vector controls for the United Launch Alliance Vulcan Rocket, position Moog to capture new business opportunities in the space sector, which could significantly impact future revenue growth.
  
• Planned increases in capital expenditures to support future program opportunities, coupled with a focus on cash flow optimization, suggest an improvement in free cash flow generation, enhancing long-term shareholder value.

Moog Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Moog's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 8.6% in 3 years time.
• Analysts expect earnings to reach $359.3 million (and earnings per share of $11.07) by about January 2028, up from $207.2 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 23.9x on those 2028 earnings, down from 30.9x 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 0.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.42%, as per the Simply Wall St company report.

Moog Future Earnings Per Share Growth

Risks

• Moog's Tewkesbury facility suffered severe flood damage, potentially leading to significant delays in production and recovery costs, impacting overall revenue and operating margins.
  
• The industrial segment of Moog continues to experience softness, especially in Eurozone markets and industrial automation, leading to decreased sales and affecting revenue growth.
  
• There is uncertainty surrounding the commercial aircraft market due to challenges faced by Boeing, and potential production issues with Airbus, which may adversely affect Moog's revenue and earnings from this segment.
  
• Extreme weather events are causing production delays across multiple global facilities, posing risks to supply chain stability and potentially increasing operational costs, thereby impacting net margins.
  
• Moog's increased capital expenditures for FY '25 due to anticipated long-term opportunities may pressure free cash flow in the short term, reducing financial flexibility and affecting earnings.

Valuation

• The analysts have a consensus price target of $222.75 for Moog based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $359.3 million, and it would be trading on a PE ratio of 23.9x, assuming you use a discount rate of 6.4%.
• Given the current share price of $200.33, the analyst's price target of $222.75 is 10.1% 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.