Last Update 04 Feb 26

ISSC: Retrofit Focus And Acquisitions Will Define The Next Growth Era

Narrative Update on Innovative Aerosystems

Analysts lifted their price target for Innovative Aerosystems by $6.50, citing the company’s focus on the retrofit market, its domestic manufacturing footprint, recent niche product acquisitions, and a refreshed management team as key factors supporting the higher valuation range.

Analyst Commentary

Bullish analysts are pointing to a clearer narrative around Innovative Aerosystems, with recent research tying the higher price target directly to how the business is positioned in its core markets and how the refreshed leadership is expected to execute.

Bullish Takeaways

Focus on the retrofit market is a key part of the thesis, with analysts highlighting that this specialization supports the higher valuation range assigned to the shares.
Domestic manufacturing capabilities are viewed as a meaningful advantage for execution, especially for customers that prioritize supply chain reliability and local production.
Recent niche product acquisitions are seen as expanding the company’s addressable opportunities, which bullish analysts link to its ability to support growth and justify a higher price target.
A refreshed management team is cited as an important factor, with analysts suggesting that improved leadership focus can support better execution against the company’s retrofit and product expansion plans.

Bearish Takeaways

Reliance on the retrofit market concentrates the story in one segment, which could limit flexibility if demand in that area softens or customers delay upgrade cycles.
Domestic manufacturing, while a perceived strength, may also come with cost pressures that could weigh on margins if pricing power is limited.
The success of recent niche product acquisitions depends on clean integration and measurable revenue contribution, which introduces execution risk if synergies are slower to materialize.
The refreshed management team, although seen as a positive, still needs to prove consistent delivery against targets, which some cautious analysts see as a key uncertainty for the current valuation range.

What's in the News

Management highlighted that Innovative Aerosystems, Inc. (NasdaqGS: ISSC) is actively seeking acquisitions, focusing on aerospace and defense component product lines or businesses with significant aftermarket potential and proprietary content and processes (Fourth Quarter 2025 Results Conference Call).
The company indicated that it is increasing available liquidity on the balance sheet to support both organic growth initiatives and future acquisitions (Fourth Quarter 2025 Results Conference Call).
The stated acquisition approach targets product lines and businesses that management describes as having growth potential above the broader market, strong cash generation, and existing profitability (Fourth Quarter 2025 Results Conference Call).

Valuation Changes

Fair Value: unchanged at $24.00, indicating no adjustment to the core valuation estimate in this update.
Discount Rate: decreased slightly from 7.69% to 7.57%, a small shift that increases the present value of projected cash flows in the model.
Revenue Growth: held steady at 9.68%, with no change to the assumed annual growth rate used in the valuation.
Net Profit Margin: effectively unchanged at 19.52%, reflecting a consistent view on future profitability levels.
Future P/E: declined slightly from 24.84x to 24.77x, indicating a marginally lower multiple applied to expected earnings.

Strategic acquisitions and investments in avionics technologies are anticipated to enhance revenue through diversification and innovations like AI integration.
Expansion of manufacturing capabilities and the IS&S Next strategy are expected to boost operating margins and revenue growth.
Reliance on military sales and acquisition-related challenges, along with debt and capacity expansion risks, could pressure margins and impact revenue growth.

Catalysts

About Innovative Solutions and Support

A systems integrator, designs, develops, manufactures, sells, and services flight guidance, autothrottles, and cockpit display systems in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Continued growth in military programs driven by new contracts, such as the U.S. Army's selection of the ThrustSense Autothrottle system and multifunction displays for foreign military platforms, indicates strong future revenue potential in defense markets.
The introduction of the IS&S Next strategy focuses on targeted commercial growth, including new OEM and retrofit programs, product line acquisitions, and the launch of new products like UMS2. This is expected to accelerate revenue growth and enhance operating margins through efficiencies.
The expansion of manufacturing capacity and increased in-house production capabilities are expected to improve operating margins and EBITDA by reducing dependency on external suppliers and enhancing scale efficiencies.
Strategic acquisitions, particularly those from Honeywell, offer significant revenue synergies and cross-selling opportunities, which could enhance both revenue and profitability through diversified offerings and new customer bases.
Investments in advanced avionics technologies, including AI integration in cockpit automation, position the company well for future demand in both commercial and military sectors, potentially boosting long-term earnings growth.

Innovative Solutions and Support Earnings and Revenue Growth

Innovative Solutions and Support Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Innovative Solutions and Support's revenue will grow by 16.8% annually over the next 3 years.
Analysts assume that profit margins will increase from 14.8% today to 17.8% in 3 years time.
Analysts expect earnings to reach $13.4 million (and earnings per share of $0.75) by about January 2028, up from $7.0 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 16.4x on those 2028 earnings, down from 27.9x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 34.0x.
Analysts expect the number of shares outstanding to grow by 0.58% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Innovative Solutions and Support Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The reliance on military sales introduces risks, as military contracts typically carry lower gross margins than commercial contracts, which could negatively affect the company's overall margin and profitability.
The integration and realization of synergies from recent acquisitions, such as those from Honeywell, are uncertain and could prove to be challenging, potentially impacting both revenue growth and operating margins if efficiencies are not achieved.
There is a financial risk associated with the significant debt incurred from the Honeywell acquisitions, which could lead to cash flow constraints or higher interest expenses, affecting net income.
The planned increase in manufacturing capacity and R&D investment could add pressure on operating expenses, and if not managed well, may not translate into proportionate revenue growth, impacting net margins.
The long sales cycle and complexities associated with military contracts may delay revenue realization, and pose a risk if anticipated backlogs do not convert as scheduled, potentially affecting short to mid-term revenue expectations.

Valuation

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

The analysts have a consensus price target of $10.7 for Innovative Solutions and Support 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 $75.1 million, earnings will come to $13.4 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 6.4%.
Given the current share price of $11.12, the analyst's price target of $10.7 is 3.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
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.

ThrustSense Autothrottle System And AI Integration Will Boost Future Prospects In Defense And Avionics