Last Update 27 Jan 26

Fair value Increased 9.03%

GHM: Strong Order Visibility And Margins Will Confront Second Half Slowdown Risks

Analysts have raised their price target for Graham to about $75.50 from roughly $69.25, citing what they describe as strong recent results, solid order visibility and firm margin trends, even as they expect order activity to cool slightly in the second half.

Analyst Commentary

Recent research on Graham highlights a mix of optimism and caution, with attention on how recent performance and order trends could feed through to future results and valuation.

Bullish Takeaways

Bullish analysts point to what they call "another strong quarter" in Q2, which they see as reinforcing confidence in the company’s ability to execute on current demand.
Comments that order visibility remains "strong" suggest analysts see a relatively clear near term revenue pipeline, which they view as helpful for supporting current valuation levels.
References to "strong" margin expansion indicate expectations for the business to convert revenue into profit efficiently, a factor these analysts see as supportive for higher price targets.
The prior lift in the price target to about $71 from $67 is framed around recent results and margin trends. This signals that bullish analysts view the risk or reward profile as improved versus earlier expectations.

Bearish Takeaways

Bearish analysts have recently shifted their stance, indicating more caution on the shares even as they acknowledge the recent performance and margin profile.
Comments that second half orders should moderate from "robust" first half levels highlight concern that growth in new business may soften. They see this as a potential constraint on further upside.
The downgrade suggests some analysts are questioning how much of the recent strength is already reflected in the share price, and whether current valuation leaves less room for error on execution.
Cautious voices appear focused on the risk that slower order activity could, over time, pressure revenue momentum and challenge expectations that were set during a period of stronger demand.

What’s in the News

Graham Corporation reiterated earnings guidance for full fiscal year 2026, with expected net sales of US$225 million to US$235 million (Key Developments).
The company reported that from July 1, 2025 to September 30, 2025, it repurchased 0 shares for US$0 million and has completed the repurchase of 539,000 shares, or 5.39%, for US$9.45 million under its buyback program announced on January 29, 2015 (Key Developments).
Graham highlighted growing momentum in its commercial space business with recent orders from leading space and aerospace customers totaling about US$22 million, booked through its Barber-Nichols subsidiary for advanced turbomachinery and precision engineered components (Key Developments).
These commercial space orders are expected to convert into revenue over the next 12 to 24 months, and Graham is investing in additional production capacity and capabilities at its Barber-Nichols facility in Colorado, including new CNC machining centers, a liquid nitrogen test stand and supporting infrastructure (Key Developments).
The company is also building a cryogenic test facility near its P3 Technologies subsidiary in Jupiter, Florida, which it expects to open later this year to support space related demand (Key Developments).

Valuation Changes

Fair Value: The analyst fair value estimate has risen from about US$69.25 to roughly US$75.50.
Discount Rate: The discount rate assumption has moved slightly from about 8.32% to around 8.30%.
Revenue Growth: The modeled long-term revenue growth rate has increased from about 8.22% to roughly 10.47%.
Net Profit Margin: The projected net profit margin has edged up from about 10.50% to around 10.69%.
Future P/E: The assumed future P/E multiple has shifted modestly from about 31.92x to roughly 32.11x.

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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