Buy Graham Corporation on the pullback, analyst says

Beacon Securities analyst Russell Stanley reiterated his “Buy” rating and $130.00 target on Graham Corporation (Graham Corporation Stock Quote, Chart, News, Analysts, Financials NYSE:GHM), arguiing that the stock’s recent pullback has created a buying opportunity.

In an Oct. 14 update, Stanley noted that Graham has fallen 43% from its all-time and 52-week highs near US$126.00 in late June, compared with a nearly 20% decline for the iShares U.S. Aerospace & Defense ETF over the same period.

Stanley said he sees no company-specific reason for Graham’s outsized decline.

He said demand for Graham’s defence business has strengthened, supported by the Ford-class aircraft carrier program and recent developments tied to the Virginia-class submarine program.

The U.S. Navy’s Strategic Systems Programs office recently awarded prototype agreements totalling US$744-million to advance its nuclear-armed sea-launched cruise missile program.

Stanley said the program is expected to be compatible with Virginia-class attack submarines and would expand the submarine’s capabilities, reinforce its demand outlook and highlight the long-term revenue visibility tied to Graham’s participation in the program.

The analyst also pointed to recent U.S. submarine activity near Norway as evidence of the Virginia-class submarine’s role in the Atlantic and Arctic. Global Defense News reported that the USS Oregon’s arrival in northern Norway expands U.S. undersea power in NATO’s High North and follows the USS Delaware’s arrival in September.

Stanley pointed out that Graham now trades at 17 times next fiscal year Adjusted EBITDA, an 11% discount to BWX Technologies and a 35% discount to Kratos.

Potential catalysts include contract wins, Q2 results in November and acquisition activity. Stanley noted Graham has more than US$100-million of available liquidity.

Stanley expects Graham to generate Adjusted EBITDA of US$35.6-million on revenue of US$290-million in fiscal 2027, improving to Adjusted EBITDA of US$49.3-million on revenue of US$321-million in fiscal 2028.

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