Loar Holdings Inc. (LOAR): A High-Conviction Aerospace Compounder with Margin Resilience and Strategic Depth

In the dynamic aerospace and defense landscape, companies that balance operational discipline with strategic innovation often emerge as long-term winners. Loar Holdings Inc. (NYSE: LOAR) exemplifies this duality, leveraging a diversified platform, robust new product pipeline, and disciplined margin expansion to navigate public company costs while delivering exceptional shareholder value. With the U.S. defense budget surging to $849.8 billion in fiscal 2025 and commercial aviation demand remaining resilient, LOAR's strategic positioning is poised to compound growth for years to come.

Diversified Platform: The Engine of Sustainable Growth

Loar's business model is anchored by a 55% revenue contribution from the commercial aftermarket, a segment inherently resistant to cyclical downturns. This segment, which includes maintenance, repair, and overhaul (MRO) services, benefits from airlines' ongoing modernization needs and a global passenger traffic increase of 11.6% in 2024. LOAR's Commercial Aftermarket revenue grew 13% year-over-year in Q2 2025, driven by higher demand for parts tied to the Airbus A320 and Boeing 737 families.

Simultaneously, the company's defense segment is accelerating at a 17%–20% CAGR, fueled by geopolitical tensions and U.S. defense spending. Defense sales surged 19% in Q2 2025, with new product launches—such as advanced sensor systems and thermal management solutions—capturing market share. LOAR's ability to diversify across commercial and defense markets insulates it from sector-specific volatility while amplifying its growth potential.

Margin Resilience: Operational Excellence in a High-Cost Environment

Public companies often face margin compression from regulatory compliance, stock-based compensation, and integration costs. LOAR, however, has turned these challenges into strengths. Its Q2 2025 gross profit margin expanded by 480 basis points to 52.1%, driven by productivity gains and a favorable sales mix. Adjusted EBITDA margins hit a record 38.3% in Q2, up 220 basis points year-over-year, reflecting disciplined cost management and pricing power.

The company's margin resilience is underpinned by three pillars:
1. Strategic Acquisitions: The acquisition of Beadlight Ltd. added mid-single-digit millions in revenue and is expected to be accretive in 2026. LOAR's pending acquisition of LMB Fans and Motors, pending regulatory approval, could further diversify its industrial offerings.
2. Operational Efficiency: LOAR's capital allocation discipline—CapEx of $14 million in 2025, or 2%–3% of sales—ensures it maintains lean operations without sacrificing innovation.
3. Pricing Power: With 55% of revenue from the aftermarket, LOAR can charge prices above inflation, a critical advantage in an era of persistent cost pressures.

New Product Pipeline: Fueling the Next Phase of Growth

LOAR's innovation engine is a key differentiator. The company has a $500 million pipeline of new products over the next five years, targeting high-margin opportunities in avionics, thermal management, and industrial systems. While certification delays have temporarily slowed some launches, management expects these to resolve in 2026, unlocking a new revenue stream.

The defense segment, in particular, is a beneficiary of this pipeline. LOAR's recent investments in sensor technology and lightweight materials align with the U.S. military's focus on modernization. With defense sales already up 30% year-over-year in Q1 2025, the company is well-positioned to capitalize on a $1.5 trillion global defense market expected to grow at 4% annually through 2030.

Valuation and Investment Case

LOAR's financials tell a compelling story. The company raised its 2025 guidance to $486 million–$494 million in net sales and $184 million–$187 million in Adjusted EBITDA, reflecting a 38% EBITDA margin—a 170-basis-point improvement over 2024. Its forward P/E of 12x is attractively low for a company with 16% EPS growth guidance and 148% cash flow conversion year to date.

Investors should also note LOAR's strong balance sheet and disciplined capital structure. With interest expenses projected at $26 million in 2025 (down from prior guidance) and a 25% effective tax rate, the company is generating robust free cash flow. This provides flexibility to reinvest in growth, reduce debt, or return capital to shareholders.

Conclusion: A Long-Term Aerospace Compounder

Loar Holdings Inc. is a rare blend of operational rigor and strategic foresight. Its diversified platform, margin resilience, and innovation pipeline create a flywheel effect: strong cash flow fuels further growth, which in turn drives margin expansion and shareholder returns. While public company costs are a headwind for many, LOAR has turned them into tailwinds through disciplined execution.

For investors seeking a long-term aerospace compounder, LOAR offers a compelling case. With a forward P/E below industry peers and a clear path to $500 million in annual sales by 2026, the company is well-positioned to outperform in both bull and bear markets. As defense spending accelerates and commercial aviation demand remains robust, LOAR's strategic depth and margin discipline make it a high-conviction buy for a diversified portfolio.