Can Astronics Sustain the Margin Expansion Over the Long Term?

Astronics Corporation ATRO has been witnessing margin improvement over the last three years, with net margin expanding 1010 basis points. Net margin expansion is being driven by a combination of cyclical recovery and structural improvements.

The Aerospace segment, its most profitable division, is benefiting from strong demand across commercial aviation and defense markets, resulting in robust sales growth and a record backlog.

Higher volumes are improving operating leverage, as fixed manufacturing and engineering costs are spread more efficiently. At the same time, growth is increasingly skewed toward higher-value products such as cabin power, connectivity and seat motion systems, which command superior margins. The company has also enhanced profitability through disciplined pricing, portfolio optimization, facility rationalization and productivity gains.

Additionally, refinancing initiatives have reduced interest expenses, further supporting overall net margin expansion.

A backlog-driven volume visibility provides a strong foundation for continued operating leverage as production scales into 2026. Aerospace backlog reached $572.5 million, up 6.5% year over year, while Test Systems backlog rose 19.5% to $74 million at 2025-end.

Rising global defense spending is supporting military aircraft programs, while increasing air travel is prompting airlines to invest in cabin upgrades, such as in-seat power and in-flight connectivity. Astronics, with its product strength and ongoing innovations, can leverage these opportunities.

Overall, robust backlog, improved operational leverage and strong positioning in high-value aerospace subsystems leave Astronics well poised to generate improved margins over time.

What About Peers?

Both Kratos Defense & Security Solutions KTOS and Rocket Lab RKLB have been witnessing margin expansion over the last few years.

Net margin at Kratos Defense & Security improved 570 basis points over the last three years, driven by strong revenue growth and operating leverage as defense programs scale, supported by rising backlog and higher production volumes.

Net margin at Rocket Lab improved 4170 basis points over the last two years. Rocket Lab benefits from electron fixed cost absorption due to increased launch cadence and ASP, paired with a favorable product mix within the space systems business.

ATRO’s Price Performance

Shares of Astronics have gained 29.5% year to date, outperforming the industry.

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ATRO’s Discounted Valuation

The stock is undervalued compared with its industry. It is currently trading at a price-to-sales multiple of 2.49, lower than the industry average of 11.94.

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Estimate Movement for ATRO

The Zacks Consensus Estimate for ATRO’s first-quarter 2026 EPS has moved 11.3% south in the past 30 days, while that for the second quarter has moved 1.5% north in the same time frame. The consensus estimate for 2026 and 2027 EPS has moved 2.7% and 7.2% north, respectively, in the same time frame.

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The consensus estimates for ATRO’s 2026 and 2027 revenues and EPS indicate year-over-year increases.

ATRO stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Astronics Corporation (ATRO): Free Stock Analysis Report

Kratos Defense & Security Solutions, Inc. (KTOS): Free Stock Analysis Report

Rocket Lab Corporation (RKLB): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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