Loar Holdings Inc. (LOAR): A Strategic Bet on Aerospace and Defense Growth

In a sector where margins matter most, Loar Holdings Inc. (LOAR) has quietly built a 11-quarter streak of EBITDA growth, a feat that underscores its position as a leader in aerospace and defense supply chains. With Q1 2025 EBITDA hitting a record $43.1 million—up 30.6% year-over-year—and a revised full-year outlook that hints at even greater upside, LOAR presents a compelling opportunity for investors seeking leveraged exposure to industrial resilience and secular growth trends. Let’s dissect why this stock could be a buy for aggressive portfolios.

Margin Mastery: The Engine of Sustainable Growth

Loar’s Adjusted EBITDA margin expanded to 37.6% in Q1 2025, marking a 160-basis-point improvement from the prior year. This isn’t just a numbers game—it’s a testament to disciplined execution. The company’s focus on high-margin product sales (e.g., advanced aerospace components and defense-grade systems) and operational cost optimization has insulated it from industry headwinds. CEO Dirkson Charles emphasized on the earnings call that pricing discipline and strategic product launches are key to this margin expansion.

The 11-quarter streak isn’t luck. It’s the result of a deliberate strategy to reduce reliance on low-margin contracts and prioritize high-value sectors like defense modernization. With free cash flow generation (not yet quantified in the data but implied by margin trends) likely to rise as EBITDA scales, LOAR is primed to reward shareholders through dividends or acquisitions.

Demand Drivers: Riding the Aerospace and Defense Wave

Loar’s Q1 results were fueled by strong performance across all three end-markets:

1. OEM (Original Equipment): Growth here reflects the modernization of global air forces, as countries like the U.S., India, and Japan invest in advanced fighter jets and drones.
2. Commercial Aftermarket: Airlines and MRO (Maintenance, Repair, Overhaul) providers are upgrading components to meet post-pandemic demand, driving recurring revenue.
3. Defense: The U.S. DoD’s $813B FY2025 budget and global geopolitical tensions are accelerating spending on combat aircraft, missiles, and cybersecurity—sectors where Loar’s precision parts are critical.

The company’s pending acquisition of LMB Fans & Motors (to close in Q3 2025) adds another tailwind. LMB’s expertise in advanced thermal management systems for aerospace and defense platforms could boost LOAR’s addressable market and diversify its customer base.

Valuation Catalysts: Why the Stock Is Poised for a Rebound

Despite the Morningstar Quantitative Rating suggesting a 594% premium to its $28.73 “fair value” estimate (a likely flawed metric given LOAR’s growth trajectory), the fundamentals argue for a much higher valuation:

• Revised FY2025 EBITDA guidance of $182–$185 million implies a margin of ~37.5%, well above peers.
• Free cash flow (if maintained at 90% of EBITDA, as historically) would exceed $165 million annually, providing ample fuel for share buybacks or debt reduction.
• The LMB acquisition could add $20–$25 million in annual synergies, further boosting EBITDA.

At a current stock price of $93.14, LOAR trades at roughly 15x the midpoint of its FY2025 EBITDA guidance ($183.5M). For context, peers like Spirit AeroSystems (SPR) trade at ~12x EBITDA, suggesting LOAR is undervalued despite its higher growth profile.

Risk-Return Balance: A Calculated Gamble

No investment is risk-free. LOAR faces headwinds like:
- Integration risks with LMB, which could strain resources.
- Customer concentration (e.g., heavy DoD reliance) leaving it vulnerable to budget cuts.
- Valuation skepticism from analysts still anchored to outdated models.

However, these risks are offset by:
- Near-term catalysts: Upward earnings revisions, LMB’s closure, and sector tailwinds.
- Strong liquidity: LOAR’s cash reserves and low leverage (post-IPO capital structure) provide a buffer.

Conclusion: LOAR Is a Buy for Growth Investors

Loar Holdings’ margin discipline, sector dominance, and strategic acquisitions position it to outperform in an aerospace/defense landscape primed for growth. At $93.14, the stock offers a rare combination of valuation upside and operational momentum. While risks exist, the catalysts—especially LMB’s synergies and DoD spending—make LOAR a strategic bet for portfolios seeking high-margin, cash-generative exposure to global industrial revival.

Action: Buy LOAR for a 12–18 month horizon, targeting $120–$130 by end-2025 as EBITDA beats and LMB synergies materialize.

Data as of May 13, 2025. Always conduct your own research before making investment decisions.