5N Plus is becoming “a defence one-stop shop”, this analyst says

Scotia Capital analyst Jonathan Goldman says the recent pullback in 5N Plus (5N Plus Stock Quote, Chart, News, Analysts, Financials TSX:VNP) has created an attractive entry point.

As reported by the Globe and Mail, in a Sept. 28 update, Goldman maintained his “Sector Outperform” rating on 5N Plus and raised his target to $37.00 from $35. 00.

Goldman said the Montreal-based specialty semiconductor and performance materials company can continue compounding EBITDA per share at a double-digit pace over the next several years, before any upside from defence.

He said 5N Plus is becoming “a defence one-stop shop,” with a growing role in the U.S. military supply chain.

“We believe 5N has become embedded in the U.S. military supply chain and that relationship should only deepen,” Goldman said.

The company received a U.S. Department of Defense grant in 2024 to support germanium crystal growth and substrate manufacturing at its St. George, Utah, facility. It later received another grant to increase germanium recycling and refining capacity by seven times.

Goldman said supplying upstream germanium has opened downstream opportunities, including a recent award to establish domestic production of gallium arsenide components.

Last week, 5N Plus announced plans to increase capacity at St. George by 50%. Goldman said none of that upside is reflected in his estimates.

The analyst estimates germanium tolling alone could add 5% to 10% to his 2028 estimates, while a 25% share of U.S. gallium arsenide wafer imports could add another 10%.

Goldman said the market is underappreciating the size of the defence opportunity.

He also said Q2 results likely revived outdated perceptions that 5N Plus remains a commodity pass-through business tied to metal margins.

The analyst said the business has been transformed over the past five years into a higher-margin downstream operation supported by long-term customer relationships.

Last-12-month EBITDA margins are nearly twice their 2021 level, despite the cost of the company’s main input rising by three times.

Goldman said margin compression should be temporary as pass-throughs move through the system.

He said 5N Plus trades at 16.1 times his 2027 EV/EBITDA estimate, down 25% from its June peak of 21.5 times.

Goldman said the company is already benefiting from durable secular trends, with two-thirds of revenue contracted to 2027 and 2028, supporting high-double-digit growth before any defence contribution.

He said the balance sheet remains strong, with net debt to EBITDA, including leases, at 0.5 times at the end of Q2 2026.

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