On the Horizon

research report

Hello,

In today’s research report, I’ll cover a tiny defense supplier that I view as a high-quality business, with custom-designed components used in several major military programs now entering a period of significantly higher production volumes.

This has already started to show up in backlog and bookings, but I don’t think the market fully appreciates either the demand ahead or what higher revenue could do to earnings given the operating leverage embedded in the business. The stock does not screen well on trailing numbers, but I think it is currently trading at ~6.5x my estimate of normalized EBIT 12–18 months from now.

I also believe earnings growth and multiple expansion are not the only ways to win here. Management launched a strategic review after receiving an unsolicited acquisition proposal, and the company may be worth meaningfully more to a strategic or PE buyer. If no sale happens, aligned insiders still have other ways to create value, whether through M&A, buybacks, or a special dividend.