Morgan Stanley: Applied Aerospace & Defense Inc. (AADX.US) — Defense Momentum, 'Show-Me' Execution; Initiate at Equal-weight with $23 PT
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Morgan Stanley has initiated coverage on Applied Aerospace & Defense Inc. (AADX.US) with an Equal-weight rating and a target price of $23. The target price is based on a multiple of 12x estimated 2027 EBITDA, implying approximately 10% upside potential from current levels.
The investment thesis acknowledges that while the company benefits from robust global defense spending momentum, the current stock price already partially reflects these optimistic growth expectations. Furthermore, Morgan Stanley emphasizes that management still needs to prove its project execution and cost control capabilities.
Key operational drivers include favorable US and NATO defense budget trends, alongside the successful integration of recent acquisitions to unlock synergies. However, risks abound, including potential order delays, cost overruns, intensifying competition from larger defense contractors and emerging technology firms, and the inherent uncertainty surrounding defense budget approvals.
On the financial front, revenues are projected to grow 15% in 2026 with an EBITDA margin around 18%. Free cash flow is anticipated to turn positive by 2027, which should support ongoing deleveraging efforts. The company currently does not offer dividends or share buybacks, though such initiatives may commence in the future. Key milestones to monitor include order conversion rates and margin trends in the second half of 2026, alongside the 2027 defense budget approval process.
Key exhibits
Exhibit 1
Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
Exhibit 6
Exhibit 7
Exhibit 8
