AJRD Q2 Earnings - Fundamentals 1, Forces of Magickal Postmodernity 0

Posted by Minerva on Jul 28, 2020 5:10:11 PM

Shocker.  Fundamentals Do Matter.  Momentarily.

Aerojet Rocketdyne delivered a very strong Q2 report after the close last night.  This was off the back of the stock being handed a severe drubbing in recent weeks.  (See our AJRD Q2 Earnings Preview for details).  The stock closed up 16% today - a result, it seems, of old-fashioned things like growth in backlog, revenue, earnings and cashflow.  A victory for reason over sentiment, stimulus and the various other horsemen riding to end the Enlightenment. 

Below we walk you through our take on the quarter.

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Before we begin, you should note that as a house we've been at Buy on AJRD throughout its period of stock price weakness - subscribers can read our full Pro investment note here - if you're not yet a subscriber you can buy the Pro note on a standalone basis here.  In addition, at the time this post was published, Cestrian Capital Research, Inc staff held long positions in the stock on a personal account basis.

We'll get right to it.  Here's how the quarter played out:

Note the big step-up in backlog, which we flagged would likely be the case, the solid revenue growth, improved EBITDA margin, and very strong cash generation.  All rather boring and rational reasons for a stock to rise.

And rise it did.  Up 16% on the day.  But even after that rise, the stock is attractively valued in our view.  Here's the valuation on a fundamentals basis.

1.5x trailing revenues, sub 9x trailing EBITDA and, note, an unlevered pretax FCF multiple lower than the EBITDA multiple - meaning the company is generating more cash than profit, even after capex.  We believe the stock to be undervalued still.  We remain at Buy.


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Topics: Public Posts, Earnings, Aerojet Rocketdyne (AJRD)

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