CPI Aerostructures: Navigating Short-Term Turbulence to Unlock Long-Term Aerospace Growth

CPI Aerostructures (NYSEMKT: CVU) has faced a challenging 2025, marked by a 26.9% year-over-year revenue decline in Q2 and a net loss of $1.3 million. These results, driven by the termination of the A-10 program and a $2.3 million write-off, have raised concerns about the company's viability. However, a deeper analysis reveals that CPI's current struggles are symptomatic of broader aerospace supply chain disruptions rather than a fundamental flaw in its business model. As the industry stabilizes and demand for next-generation defense systems accelerates, CPI is positioned to emerge as a high-conviction investment opportunity.

Short-Term Pain, Long-Term Gain: The A-10 Exit and Strategic Rebalancing

CPI's Q2 2025 results were heavily impacted by the abrupt termination of its A-10 program by Boeing, a legacy contract that contributed to a 4.4% gross margin (excluding A-10, 17.1%) and a net loss of $1.3 million. While painful, this exit is a necessary step in CPI's transition from legacy programs to high-growth defense contracts. The company's $506 million backlog—up 12% year-over-year—now includes multi-year awards from Raytheon, Lockheed Martin, and the U.S. Air Force, such as a $50.8 million T-38C Pacer Classic III contract and a $33.4 million Next Generation Jammer Mid-Band (NGJ-MB) program.

The A-10 program's exit also forced CPI to confront operational inefficiencies. A $4.5 million write-off over six months and a debt-to-adjusted EBITDA ratio of 2.7 (excluding A-10 impact) highlight the short-term financial strain. However, the company has taken proactive steps to deleverage, reducing total debt to $16.2 million and improving liquidity. These measures, combined with a 150-basis-point gross margin expansion year-over-year, suggest CPI is laying the groundwork for a sustainable recovery.

Aerospace Supply Chain Recovery: A Catalyst for CPI's Rebound

The aerospace industry is at an inflection point. According to the Roland Berger 2025 Aerospace Supply Chain Resilience Report, 70% of companies now feel “well-prepared” for production rate increases, up from 35% in 2024. While challenges like personnel shortages and financial constraints persist, the report notes that resilience measures are paying off, with full recovery expected by 2026.

CPI's strategic alignment with next-generation defense programs positions it to benefit from this recovery. For example, its $2.5 million T-38C modification kits contract with the U.S. Air Force (part of a $65.7 million total award) reflects growing demand for modernization of legacy fleets. Similarly, CPI's role in Raytheon's NGJ-MB program—a critical component of the U.S. military's electronic warfare capabilities—aligns with long-term defense spending trends.

Strategic Investment Opportunities: Undervaluation and Backlog Durability

CPI's current valuation appears attractive relative to its peers. Trading at a P/E ratio of 20.37 and a P/B ratio of 1.73, the company is undervalued compared to industry averages. Analysts project a one-year price target of $4.08, implying a 20% upside from its current level. This valuation discount is justified by near-term volatility but overlooks CPI's durable backlog and technical differentiation.

The company's $506 million backlog, with 60% expected to convert into revenue over the next 18 months, provides a clear path to EBITDA recovery. If CPI achieves 70% of its 2024 EBITDA levels ($10.4 million annualized), its leverage ratio would drop to a sustainable 1.6x, reducing financial risk and enabling reinvestment in growth. Additionally, CPI's proprietary welding expertise—though not patented—has become a competitive moat, enabling it to secure contracts that larger competitors find logistically challenging.

Risks and Mitigants: Navigating a Volatile Sector

CPI's business model is inherently volatile due to its reliance on project-based contracts. A sudden shift in defense priorities or supply chain bottlenecks could disrupt revenue visibility. However, the company's diversified backlog and strategic partnerships—such as its long-term agreement with MST Manufacturing—mitigate these risks. MST's AS9100 and ISO9001 certifications ensure production continuity, while CPI's role as a Tier 1 supplier to OEMs and a prime contractor to the U.S. Department of Defense enhances its resilience.

Another risk is CPI's unresolved material weakness in internal controls related to debt covenant compliance. While this did not impact Q2 results, investors must monitor management's ability to address governance issues as the company transitions to new programs.

Conclusion: A High-Conviction Play in Aerospace Recovery

CPI Aerostructures' current losses are a temporary setback in a sector undergoing structural transformation. The company's strategic pivot to high-growth defense programs, disciplined debt management, and technical differentiation position it to capitalize on the aerospace supply chain's recovery. As production rates stabilize and demand for next-generation systems accelerates, CPI's robust backlog and undervalued stock make it an attractive long-term investment.

For investors with a 2–3 year horizon, CPI offers a compelling opportunity to participate in the aerospace sector's rebound. While short-term volatility is inevitable, the company's alignment with defense spending tailwinds and its ability to execute complex, high-margin contracts suggest a strong upside as the industry turns a corner.