Defense Spending And Automation Will Expand Market Presence

Key Takeaways

• Strong demand in defense, automation, and aftermarket services is fueling stable, recurring growth and supporting margin expansion across multiple business segments.
  
• Efficiency initiatives, R&D investments, and strategic acquisitions are bolstering technological leadership and improving profitability despite external cost pressures.
  
• Margin pressure from tariffs, defense budget dependence, cash flow conversion challenges, aerospace program delays, and reliance on one-off asset sales threaten long-term growth and stability.

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, Germany, and internationally.

• Moog is positioned to benefit from a sustained increase in global defense spending, with significant order backlog and direct exposure to U.S., NATO, and Indo-Pacific modernization programs, which is likely to drive multi-year revenue growth and increased earnings stability.
  
• Growing demand for automation and digitization, particularly in industrial automation and medical segments, is supporting steady growth in Moog's higher-margin businesses, underpinning long-term expansion in both revenue and net margins.
  
• Expansion of the aerospace and defense aftermarket business-with record contributions from services and long-term support contracts-should enhance recurring revenue streams and support higher net margins over time.
  
• Continued investment in research and development, as well as targeted acquisitions such as COTSWORKS, are strengthening Moog's technological advantages in high-growth areas like advanced actuators, hypersonics, space, and optoelectronics, supporting future topline growth.
  
• Operational efficiency initiatives (including facility consolidation, divestiture of noncore product lines, and the 80/20 simplification program) are resulting in higher productivity and margin improvement; this should continue to drive both operating margins and free cash flow higher despite near-term tariff and working capital headwinds.

Moog Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Moog's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 9.1% in 3 years time.
• Analysts expect earnings to reach $401.7 million (and earnings per share of $12.43) by about August 2028, up from $211.6 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 20.4x on those 2028 earnings, down from 29.0x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 36.3x.
• Analysts expect the number of shares outstanding to decline by 0.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

Moog Future Earnings Per Share Growth

Risks

• Persistent and increasing tariff pressures on key input materials (steel, aluminum) and goods from major suppliers and facilities have already required Moog to implement mitigation measures, but ongoing changes in global trade policy and higher country tariffs could further erode operating margins if costs cannot be adequately passed to customers or offset, impacting future net earnings and margin stability.
  
• Dependence on elevated global defense budgets, particularly from the U.S., NATO, and Indo-Pacific allies, exposes Moog to potential discretionary budget cuts, policy shifts, or changing geopolitical priorities, risking long-term revenue stability and predictability if the current defense spending trend reverses or slows.
  
• Moog's Free Cash Flow (FCF) guidance has been consistently revised downward due to elevated working capital needs (primarily physical inventories) required to support growth, indicating structural challenges in converting sales growth into cash flow, which could pressure earnings and limit the company's ability to fund R&D or strategic initiatives without increased leverage.
  
• The acknowledgment of disruptions and delays in commercial aircraft (especially narrow-body and business jet programs), along with the loss of certain contracts (e.g., A350 spoiler system), highlights Moog's exposure to customer-specific delays, competitive losses, and overdependence on a small set of aerospace platforms, all of which may threaten long-term revenue growth and margin consistency.
  
• While Moog is investing in margin improvement and simplification (e.g., footprint rationalization and divestitures), the one-off benefits from asset sales and portfolio exits may not be sustainable, and further divestitures could shrink the addressable market, slowing topline growth and making it harder to maintain or expand net margins in the long term.

Valuation

• The analysts have a consensus price target of $216.25 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 $4.4 billion, earnings will come to $401.7 million, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 8.1%.
• Given the current share price of $194.01, the analyst price target of $216.25 is 10.3% 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.