Last Update 19 Dec 25

GHM: Strong Order Visibility And Margin Expansion Will Support Further Upside

Analysts have raised their price target on Graham from $67.00 to $71.00, citing another strong quarter, solid visibility into future orders, and ongoing margin expansion. They also note the potential for near term consolidation after the stock's sharp run up.

Analyst Commentary

Bullish Takeaways

Bullish analysts highlight that the latest quarterly results underscore strong execution, supporting a higher valuation range despite recent share gains.
They point to robust first half order activity and healthy backlog visibility as reinforcing confidence in Graham's medium term growth trajectory.
Ongoing margin expansion is viewed as a key driver of earnings leverage, suggesting upside potential if the company maintains cost discipline and pricing power.
The raised price target reflects expectations that solid fundamentals can justify a premium multiple relative to historical levels.

Bearish Takeaways

Bearish analysts caution that the stock's sharp appreciation over the past year limits near term upside, increasing the risk of valuation driven pullbacks.
They expect order trends to moderate in the second half compared with the "robust" first half, which could temper growth momentum and investor sentiment.
Concerns center on a potential consolidation phase as current expectations may already discount much of the recent operational improvement.
Some see the risk reward profile as more balanced at current levels, with execution needing to remain strong to sustain the higher price targets.

What's in the News

Graham reported growing momentum in its commercial space business, securing approximately $22 million in new orders for advanced turbomachinery and precision components from six leading commercial space launch customers, expected to convert to revenue over the next 12 to 24 months (Key Developments).
The company is expanding production capacity at its Barber Nichols facility in Colorado, adding new CNC machining centers, a liquid nitrogen test stand, and related infrastructure to support faster delivery and higher throughput for space customers (Key Developments).
Graham is also progressing on a new cryogenic test facility near its P3 Technologies subsidiary in Jupiter, Florida, slated to open later this year to further enhance testing capabilities for next generation space systems (Key Developments).
The company reiterated its full fiscal year 2026 earnings guidance, maintaining expectations for net sales in the range of $225 million to $235 million (Key Developments).

Valuation Changes

Fair Value Estimate is unchanged at $69.25 per share, indicating no adjustment to the intrinsic value assessment.
The discount rate has fallen slightly from 8.31 percent to 8.27 percent, reflecting a modest reduction in perceived risk or cost of capital.
Revenue growth has been reduced modestly from 8.22 percent to 7.75 percent, signaling a slightly more conservative outlook on top line expansion.
Net profit margin has risen slightly from 10.50 percent to 10.95 percent, implying improved profitability expectations over the forecast period.
Future P/E has edged down from 31.9x to 31.0x, suggesting a marginally lower valuation multiple applied to forward earnings.

Strong recurring revenue from defense and energy drives stability, while new energy transition markets offer significant long-term growth potential.
Investments in automation, proprietary products, and enhanced services are expected to boost margins, competitive positioning, and operational efficiency.
Heavy dependence on volatile defense and legacy energy markets, coupled with uncertain new ventures and operational execution risks, threatens future revenue stability, growth, and profitability.

Catalysts

About Graham

Designs and manufactures fluid, power, heat transfer, and vacuum technologies for chemical and petrochemical processing, defense, space, petroleum refining, cryogenic, and energy industries.What are the underlying business or industry changes driving this perspective?

Record backlog growth and strong book-to-bill ratio signal rising multi-year demand, underpinned by sustained U.S. Navy defense programs and increasing global infrastructure investment, supporting future revenue visibility and stability.
Major growth initiatives in energy transition markets-such as small modular nuclear reactors, hydrogen, and cryogenics-position Graham to benefit from long-term shifts toward renewables, potentially driving new orders and incremental revenue growth.
Strategic investments in manufacturing automation, new facilities, and ERP systems are set to enhance operational efficiency and throughput, which should drive margin expansion and higher earnings over time.
An expanding aftermarket and service business, especially in both energy and defense markets, is increasing recurring, higher-margin revenue streams, expected to improve gross and net margins and reduce earnings volatility.
Enhanced R&D and proprietary product offerings (e.g., the next-gen vacuum distillation nozzle) differentiate Graham in increasingly complex process industries, supporting pricing power and long-term margin improvement.

Graham Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Graham's revenue will grow by 9.4% annually over the next 3 years.
Analysts assume that profit margins will increase from 6.4% today to 8.5% in 3 years time.
Analysts expect earnings to reach $24.0 million (and earnings per share of $2.1) by about September 2028, up from $13.9 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.3x on those 2028 earnings, down from 37.6x today. This future PE is greater than the current PE for the US Machinery industry at 24.7x.
Analysts expect the number of shares outstanding to grow by 0.79% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

Graham Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The company's record backlog and near-term revenue strength are heavily concentrated in multi-year, lumpy U.S. defense contracts-creating future risk if Navy procurement slows, projects are delayed, or government budgets change, which could significantly impact revenue stability and growth.
Graham's energy and process segment continues to rely meaningfully on oil refining and petrochemical markets; ongoing global energy transition away from fossil fuels and toward renewables may structurally reduce long-term demand for their core legacy products, impacting future revenue growth opportunities and earnings.
The strong gross margin performance in the most recent quarter was driven unusually high aftermarket sales, which management does not expect to be sustainable, and the mix is expected to normalize with more lower-margin project work, potentially pressuring future margins and net income.
Growth in new markets like small modular nuclear, cryogenics, and space is in early-stage, low-volume development phases, with management noting commercial traction remains nascent; if industry adoption is slower or more competitive than anticipated, Graham could see delayed or lower-than-expected revenue and earnings contribution from these initiatives.
Execution risks include potential difficulties integrating recent/acquired facilities, completing automation and ERP rollouts, and launching new testing capacity; failure to realize anticipated productivity and margin enhancement from these capital projects could result in elevated SG&A or underutilized assets, diminishing net margins and returns on invested capital.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $59.5 for Graham 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 $65.0, and the most bearish reporting a price target of just $52.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $281.8 million, earnings will come to $24.0 million, and it would be trading on a PE ratio of 34.3x, assuming you use a discount rate of 7.9%.
Given the current share price of $47.5, the analyst price target of $59.5 is 20.2% 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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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