Ducommun Incorporated (DCO), a global supplier of innovative electronic and structural solutions for the aerospace & defense industry reported solid second quarter 2024 results.
DCO is a well-established supplier of critical components and assemblies for commercial aircraft, military, space vehicles and for the energy market, medical field, and industrial automation operating through Electronic Systems and Structural Systems segments.
During the second quarter, DCO secured a major award valuing over $12 million in revenue for Raytheon’s TOW missile system, to be produced at its world-class engineering and manufacturing performance center in Guaymas. Also, it earned the Northrop Grumman Mission Systems Platinum Supplier Designation illustrating DCO’s continuous high level of quality and on-time delivery performance.
Further, DCO’s prospects appear bright with the robust growth of the overall global aerospace and defense market. The market is currently influenced by increasing geopolitical issues, government support, rising urbanization, and increasing military modernization programs, positioning it for significant growth. Also, trends like adoption of 3d printing technology, use of AI, edge computing in defense shape the market.
Stephen G. Oswald, chairman, president and chief executive officer said, “Q2 was another outstanding quarter for DCO as we grew our topline both year-over-year and sequentially, led by strength in both of our Commercial Aerospace and Military segments along with strong quarterly gross margins and Adjusted EBITDA margins.”
He added, “Net revenue was a quarterly record $197.0 million, up over 5% compared to Q2 2023, with strong demand for business jets, select Airbus platforms, required buffer stock build for the Monrovia facility closure along with maintaining level load production rates on other commercial aerospace platforms despite the temporary slowdown in demand from aircraft OEMs.”
Shares of DCO have surged 33% over the past six months and 42.7% over the past year to close its last trading session at $64.91.
Let’s look at factors that could influence DCO’s performance in the upcoming months.
Positive Recent Developments
On June 20, DCO received a major award totaling over $12 million in revenue for Raytheon’s TOW missile system. The award represents the first order to be produced at the company’s world-class engineering and manufacturing performance center in Guaymas.
Robust Financials
DCO’s net revenues increased 5.2% year-over-year to $197 million during the second quarter that ended June 29, 2024. Its gross profit grew 27.7% from the year-ago value to $51.24 million. The company’s non-GAAP adjusted operating income of $19.86 million indicates growth of 30.7% from the prior year’s quarter.
In addition, the company’s non-GAAP adjusted net income and non-GAAP adjusted EPS came in at $12.47 million and $0.83, up 71.4% and 53.7% year-over-year, respectively. Its adjusted EBITDA increased 14.8% from the year-ago value to $29.97 million.
Also, the company’s total assets stood at $1.13 billion as of June 29, 2024, compared to $1.12 billion as of December 31, 2023.
Solid Historical Growth
DCO’s revenue and EBITDA have grown at respective CAGRs of 7.5% and 4.9% over the past three years. The company’s EBIT has increased 4.4% over the same timeframe, while its tangible book value and total assets have improved at CAGRs of 65% and 10.9%, respectively.
Favorable Analyst Estimates
Analysts expect DCO’s revenue for the fourth quarter (ending December 2024) to increase 6.3% year-over-year to $204.39 million. The consensus EPS estimate of $0.93 for the same quarter reflects a 33.2% year-over-year improvement. Furthermore, the company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
For the fiscal year ending December 2024, its revenue and EPS are expected to grow 4% and 23% year-over-year to $787.33 million and $3.16, respectively. Additionally, Street expects the company’s revenue and EPS for the fiscal year 2025 to increase 6.9% and 27.1% year-over-year to $841.83 million and $4.02, respectively.
Low Valuation
In terms of forward EV/Sales, DCO is currently trading at 1.54x, 17.3% lower than the industry average of 1.86x. Also, the stock’s forward EV/EBITDA and Price/Sales of 10.30x and 1.22x are considerably lower than the industry average of 11.74x and 1.51x, respectively.
Additionally, the stock’s forward Price/Book of 1.46x is 49.2% lower than the industry average of 2.87x.
POWR Ratings Reflect Promise
DCO’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. DCO has a B grade for Growth, in sync with its impressive historical growth and solid financial performance in the last reported quarter.
In addition, the stock has a B grade for Value, consistent with its low valuation.
DCO is ranked #8 in the 70-stock Air/Defense Services industry.
Beyond what I have stated above, we have also given DCO grades for Sentiment, Quality, Momentum, and Stability. Get access to all the DCO Ratings here.
Bottom Line
DCO reported solid financial results in the last reported quarter. The company has a strong presence in the sector, especially in aerospace & defense industry, and it continues to secure significant contracts with major organizations, which provides a stable stream of revenue.
Also, its diversified portfolio of services and solutions, technological advancements, and solid financial performance contribute to the company’s ongoing growth in the competitive market. Given strong financials, lower valuation, and robust growth outlook, it could be wise to invest in this stock.
How Does Ducommun Incorporated (DCO) Stack Up Against Its Peers?
While DCO has an overall POWR Rating of B, investors could also check out these other stocks within the Air/Defense Services industry with A (Strong Buy) or B (Buy) ratings: Elbit Systems Ltd. (ESLT), Lockheed Martin Corp. (LMT), and Innovative Solutions and Support, Inc. (ISSC).
For exploring more A and B-rated Air/Defense stocks, click here.
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DCO shares were trading at $65.03 per share on Monday afternoon, up $0.12 (+0.18%). Year-to-date, DCO has gained 24.91%, versus a 18.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
Is Ducommun Incorporated a Hidden Gem in the Aerospace & Defense Sector? StockNews.com
