Magellan Aerospace's NCIB: A Strategic Move to Unlock Undervalued Potential

The aerospace sector remains a battleground for value hunters, but Magellan Aerospace Corp (MAL.TO) has just upped the ante with its renewed Normal Course Issuer Bid (NCIB). This $22.6 million share buyback program, representing 5% of its outstanding shares, signals a bold stance by management: Magellan's stock is undervalued, and the time to act is now. Let's dissect why this move is a masterstroke of shareholder value creation—and why investors should take note.

The NCIB: A Vote of Confidence

Magellan's NCIB, announced in May 2025, authorizes the repurchase of up to 5% of its shares at a cost of $22.6 million, based on the month's average price. This isn't just a routine market move—it's a clear statement of management's belief that shares are trading below intrinsic value. For context, reveals that while Magellan's P/E of 33.73 is higher than its peers (e.g., HRX at 20.96), its PEG ratio of 0.98 paints a different picture. A PEG below 1 suggests growth is outpacing valuation, making the stock a bargain for growth investors.

The Undervaluation Case: Metrics That Matter

Critics might point to Magellan's P/E premium, but two factors justify its buyback merit:
1. Growth at a Discount: Magellan's earnings are projected to double over the next few years, fueled by long-term contracts with Pratt & Whitney and NASA. A P/E of 33.73 at this growth rate is reasonable—especially when its PEG ratio (0.98) aligns with companies delivering sustainable expansion.
2. Value vs. Peers: While Magellan's P/E exceeds the aerospace & defense industry average of 21.15, its Price-to-Book (P/B) ratio of 1.20 is modest compared to peers. For instance, Bombardier's P/B of 1.5 and CAE's 1.8 suggest Magellan is trading at a 50–60% discount to its peers' asset valuations, even excluding CAE's loss-making status.

This mispricing creates a compelling opportunity: Magellan can repurchase shares at a P/B of 1.20, well below its asset-based intrinsic value.

Cash Flow: The Engine Behind the Buyback

Share buybacks are only as credible as the cash flow supporting them. Magellan's recurring revenue streams—$968 million in trailing 12-month revenue—are underpinned by decades-long contracts. For example:
- A $1 billion deal with Qatar's FS-LIDS program (a radar system for fighter jets) ensures multiyear revenue visibility.
- NASA's Space Launch System (SLS) program locks in work through 2030.

These contracts generate stable EBITDA of $44.17 million (TTM), providing ample liquidity to fund buybacks without compromising operations. With net debt-to-equity at a conservative 0.7 (vs. Deere's 0.5), Magellan's balance sheet is robust enough to sustain this strategy.

Risk Mitigation: EPS Boost and Dilution Reduction

Every share repurchased reduces the float, amplifying earnings per share (EPS). Magellan's net income of $18.72 million translates to an EPS of $0.63. Buying back 5% of shares would lift EPS to $0.66–$0.68, improving its valuation multiples. This creates a virtuous cycle: higher EPS attracts buyers, lifting the stock price and reducing the cost of future buybacks.

Moreover, buybacks mitigate dilution risks from employee stock options or future financings. In a sector where defense spending is rising (global budgets hit $842.7 billion in 2025), Magellan's focus on shareholder returns stands out.

Actionable Insight: Capitalize on the Discount

Magellan's NCIB is a catalyst for value realization. Here's how investors can play it:
1. Buy Before the Buyback: With shares trading at CAD $17.90—52.8% below its discounted cash flow-derived fair value of CAD $37.46—now is the time to accumulate positions.
2. Hold Through the Buyback Period: The NCIB's execution will likely compress the discount between price and intrinsic value.
3. Monitor Contract Wins: Track new defense/aerospace deals, as each adds to Magellan's backlog and justifies its premium to peers.

The Bottom Line

Magellan's NCIB isn't just a tactical move—it's a strategic bet on its own undervaluation. With a PEG below 1, stable cash flows, and contracts that defy cyclical headwinds, this buyback is a rare chance to profit from market inefficiency. Investors who act now could reap rewards as the market catches up to Magellan's true worth.

The numbers don't lie. The time to act is now.