Damodaran FCFF (ginzu standard) · R&D capitalized (5-yr) · pro forma Aydin
FAIR · SLIGHT DISCOUNTRISK: HIGH
Base $20.02 vs price $19.01 · +5%
Price (9/29 intraday)
$19.01
Base value
$20.02
Scenario range
$9.08 – $38.30
Key driver
Growth via product-line M&A ±5pts growth = $15–$26
The Take
Take a starter position, and let the price come to you for the rest. This is the first name in months where the DCF doesn't laugh at the price. At $19 you're paying about base value ($20.02) for a business that has doubled EBIT in two years. The payoff is lopsided: bull $38.30 (+101%) vs bear $9.08 (−52%). The 25/50/25 probability-weighted value is $21.86 (+15%).
What you're buying is a disciplined roll-up of orphaned avionics lines. IA buys product lines that primes like Honeywell and Moog no longer want to run, moves production into Exton, and reprices the aftermarket. In FY26 alone that meant Honeywell autopilot ($22.0M), Honeywell generators ($8.0M), Moog S-TEC 3100 ($3.5M), then Aydin Displays ($24.5M, ~$16M revenue, closed 7/21). It pays about 1.5x sales for businesses that end up at 25%+ EBIT margins. That's the engine: incremental ROIC is ~29% even though reported ROIC is only ~14%, because goodwill and intangibles bloat the base.
The numbers are real. TTM revenue is $93.1M (FY24 was $47.2M). GAAP EBIT is $25.5M (27.4%), or 30.4% after capitalizing R&D. Q3 gross margin was 51.7%. Backlog is $82.9M, and Q4 guidance is $28–30M. Management's target is $250M of revenue at 25–30% adjusted EBITDA by FY29. My base only reaches $249M by Year 10. I'm not underwriting their roll-up pace, only a fade from 18% growth.
Why only a starter: margin is at a peak and the balance sheet has turned. The 5-yr average GAAP EBIT margin is 22.1%. Management's own 25–30% adjusted-EBITDA target works out to only ~21–23% GAAP EBIT, below TTM. Q3 also rode a favorable commercial-aftermarket mix. Pro forma net debt is ~$68M, about 2.0x EBITDA, up from ~0.9x a year ago. Inventory of $32M is 34% of revenue. It's a 147-person company leaning on F-16 display generators and Honeywell carve-outs. At $19, the market implies a permanent ~23% R&D-adjusted margin, which is just below my 24% base. So you get the growth for free, but not the margin of safety.
Call: BUY a 1/3 starter at $19. Add the second third below $17 (15% margin of safety) and go to full size below $15. Watch four things: Q4 FY26 printing $28M+ (December), Aydin's pro forma financials (8-K/A due ~late Sept), the next carve-out price vs revenue, and whether gross margin holds above 45% once F-16 flows settle at ~$5M a quarter. If they pay more than 2x sales for the next deal, the thesis weakens.
Risk Profile — High
No commodity or FX exposure. The "inventory" here is literal: $32.1M of avionics parts and F-16 safety stock against $93M of revenue. Obsolescence risk sits on legacy military and bizjet hardware. You're long the fleet aftermarket and defense sustainment, long deal execution, and short rates (floating DDTL, now swapped).
HIGH
Acquisition execution / price discipline: growth is bought. At 1.0x sales-to-capital value drops to $18.29; at 2.5x it's $21.41. Every carve-out needs a production transfer (the Honeywell F-16 move took until Q2 FY26). One botched transfer means lost deliveries and a margin hit.
HIGH
Margin mean-reversion: TTM 27.4% GAAP EBIT vs a 22.1% 5-yr average. Q3 gross margin of 51.7% compares with 35.6% a year ago, because the prior year carried F-16 safety-stock costs. Target margin ±300bp = $16.98–$23.07.
MED
Program concentration: F-16 revenue fell from $12.6M (Q3 FY25, pull-forward) to $5.7M, with ~$5M a quarter guided as sustainable. Honeywell is both counterparty and supplier. The eVTOL program (production late 2027, full rate 2028) is optionality, not base case.
MED
Leverage & size: debt of $54.5M (June) + $24.5M for Aydin = ~$79M against a ~$348M market cap. The $53.7M swap fixes the base rate at 4.057% through 7/2030. Liquidity is thin (~260K shares/day). It was only just added to the Russell 2000.
LOW-MED
Rates / discount: 10Y is 5.17%. WACC ±100bp = $16.29–$25.34. For a sub-$400M EV name, that's the second-widest bar.
Light = revenue, dark = EBIT. FY21 is estimated. FY24→25 step-up is the Honeywell F-16 line.
Driver tornado — value/share
The widest bar is growth, which here means deal flow. WACC comes second because this is a small, long-duration equity. Margin is third. Sales-to-capital (deal price) looks narrow on its own, but it moves with growth: fast growth bought at 1.0x sales is worth less than slow growth bought at 2.5x. TV is 62% of EV, inside the 70% guardrail.
Green = 15%+ above price (a real buy). Red = more than 15% below. Outlined = base. It takes both a lower WACC and 26%+ margins to reach green, so there's no margin of safety at $19.
Base-year EBIT is R&D-adjusted TTM plus Aydin (~$16M revenue at an assumed 15% EBITDA / ~$2M EBIT), giving a pro forma start of 27.8% that fades to a 24% target by Y5. FY21 is estimated.
Cost of capital (bottom-up)
Riskfree (10Y, 9/25)
5.20%
Equity risk premium
4.40%
Unlevered beta (aerospace/defense)
0.95
D/E (debt $79M / mkt cap $348M)
22.7%
Levered beta
1.12
Cost of equity
10.13%
Pre-tax cost of debt (4.057% swap + ~2% spread, est.)
6.1%
After-tax cost of debt
4.8%
Debt weight
18.5%
WACC, high growth
9.2%
WACC, stable (β 1.0, 20% debt)
8.75%
Tax: 22% (9M effective 21.8%) → 25% stable
FCFF projection ($M) — base
Yr
Revenue
Growth
EBIT mgn
NOPAT
Reinvest
FCFF
WACC
PV
1
128.7
18.0%
27.0%
27.2
13.1
14.1
9.20%
12.9
2
146.8
14.0%
26.3%
30.1
12.0
18.1
9.20%
15.2
3
164.4
12.0%
25.5%
32.7
11.7
21.0
9.20%
16.1
4
180.8
10.0%
24.8%
34.9
11.0
24.0
9.20%
16.9
5
195.3
8.0%
24.0%
36.6
9.6
26.9
9.20%
17.3
6
208.9
7.0%
24.0%
38.8
9.1
29.7
9.11%
17.5
7
221.5
6.0%
24.0%
40.8
8.4
32.5
9.02%
17.6
8
232.6
5.0%
24.0%
42.5
7.4
35.1
8.93%
17.5
9
241.9
4.0%
24.0%
43.9
6.2
37.7
8.84%
17.2
10
249.1
3.0%
24.0%
44.8
4.8
40.0
8.75%
16.8
Base = TTM $93.1M + Aydin $16M = $109.1M. Reinvestment = Δrevenue / 1.5 (blended: organic ~2.5x, acquired ~1.0–1.5x sales). Terminal: g 3%, stable ROIC 15%, so reinvestment is 20% of NOPAT.
Bridge ($M)
PV of FCFF, Y1–10
164.9
Terminal value
642.6
PV of terminal value
269.8
Operating assets
434.7
+ Cash (6/30)
10.7
− Debt ($54.5 + $24.5 Aydin)
79.0
Equity value
366.4
÷ Diluted shares (M)
18.3
Value / share
$20.02
Q4 FY26 FCF (~$3–5M) is not credited, which is conservative. SBC (~3% of revenue) is expensed in EBIT, so diluted shares carry no separate option charge.
Market cross-check
Market cap / EV (pro forma)
$348M / $416M
EV / TTM adj. EBITDA ($31.5M)
13.2x
EV / PF adj. EBITDA (+Aydin ~$2.4M est.)
12.3x
P/E TTM (EPS ~$1.04)
18.3x
Net debt / PF EBITDA
~2.0x
Price-implied R&D-adj margin
~23%
After-tax ROIC (R&D-adj) / incremental
13.9% / ~29%
52-wk range
$8.13 – $30.94
Analyst coverage (Robinhood feed)
none reported
Down 39% from the March high as the F-16 pull-forward rolled off, but still up 2.3x from the Nov-25 low. At 12–13x EBITDA with 20%+ growth, it's cheaper than aftermarket peers without the scale.
Reality checks
Terminal g 3.0% < stable WACC 8.75% and < riskfree 5.2%
✓
TV share of EV 62% (<70%)
✓
Stable ROIC 15% > WACC (no runaway multiple)
✓
R&D capitalized in both EBIT and invested capital
✓
Y10 revenue $249M vs mgmt $250M by FY29, so base is ~6 yrs slower than plan