Magellan Aerospace is still undervalued, this fund manager says

LionGuard Capital Management CEO and CIO Andrey Omelchak says Magellan Aerospace (Magellan Aerospcace Stock Quote, Chart, News, Analysts, Financials TSX:MAL) is positioned to benefit from long-term demand in aerospace and defence, with spare capacity supporting potential margin expansion.

Speaking on BNN Bloomberg’s Market Call on June 26, Omelchak said Magellan supplies major aerospace customers, including Boeing and Airbus, and should benefit from a multi-year aircraft replacement cycle.

“There are a lot of old airplanes in service that need replacing,” Omelchak said.

He also sees strong demand on the defence side, with Magellan seeing a record level of requests for proposals. Omelchak said the company works with Canadian defence customers as well as NATO countries in Europe.

“What’s exciting to me is that they have a lot of spare capacity, so new work will come at high incremental margins,” the investor said. “As a result, we’re going to see a big pickup in free cash flow generation per share.”

Omelchak said Magellan should not be compared directly with SpaceX, but it does supply components used in aerospace and defence applications.

He pointed to Canada’s expected submarine procurement as a potential opportunity, saying Magellan could supply components if the project is awarded to either South Korea or Germany.

“What’s happening is that the Canadian government is forcing the companies that are manufacturing submarines to buy subcomponents from Canadian manufacturers,” Omelchak said.

The stock was up 60.4% over the previous 12 months and 197.6% over five years. Of the analysts covering the stock, three rated it “Buy,” none rated it “Hold” and none rated it “Sell,” with a consensus target of $38.75.

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