Magellan Aerospace scores target raise from Paradigm

Things are looking up for Magellan Aerospace (Magellan Aerospace Stock Quote, Charts, News, Analysts, Financials TSX:MAL), according to Paradigm Capital analyst J. Marvin Wolff, who reviewed the company’s latest financials in a Tuesday report. Wolff maintained a “Buy” rating on the stock while raising his target price from $10.50 to $12.00, saying the uplift in the global commercial and military aircraft industries should benefit Magellan.

A supplier of critical components in landing gear, engine and fuselage for commercial and military aircraft, Magellan Aerospace reported its first quarter 2023 earnings on May 4, coming in with revenue up 19.0 per cent year-over-year to $223.4 million and adjusted EBITDA up 61.9 per cent to $18.6 million. The quarterly adjusted EBITDA per share was $0.32. Wolff said he was estimating $198.5 million in revenue and a loss of $0.10 per share.

Wolff said that while the uptick in aerospace orders is evident, it’s coming slowly after a fallow period, with wide-bodied aircraft remaining a weak segment. At the same time, the analyst said supply chain problems have lessened somewhat, while volume increases in casting products and build rates on single-aisle aircraft were noticeable in bringing MAL’s gross margin for the Q4 to 4.0 per cent compared to zero a year earlier.

“The aerospace sector is improving slowly as Magellan’s results indicate,” said Wolff.

The analyst has adjusted his 2023 forecast accordingly and is now calling for revenue of $887 million (previously $805 million, gross margin of 9.9 per cent (previously 7.7 per cent and EPS of $0.28 versus $0.02 previously.

2024’s forecast was also improved, with revenue at $921 million compared to $848 previously and EPS at $0.70 from previously $0.64 per share.

“Despite a slow recovery, we maintain our Buy recommendation as the shares are trading at 0.62x BV,” said Wolff.

On the industry, Wolff is optimistic, saying, “The growth in deliveries through 2023 and 2024 are improving as airline traffic demand has bounced strongly off the COVID bottom. We believe the aircraft production curve has bottomed. The commercial aircraft order book is growing and stands at over 12,218, up from 11,400 a year ago.”

At the time of publication, Wolff’s new $12.00 target represented a projected one-year return of 34 per cent.