Moog Inc.'s Q3 2025 Earnings: A Strategic Buy Opportunity Amid Defense Spending Tailwinds and Margin Expansion

Moog Inc. (MOGA/MOGB) has emerged as a compelling long-term investment opportunity, driven by a confluence of secular defense growth, operational simplification, and robust free cash flow generation. The company's Q3 2025 earnings report underscores its strategic positioning to capitalize on global defense spending trends, with revenue of $971 million—up 7.3% year-over-year—and adjusted earnings per share (EPS) of $2.37, a 24% increase. These results, coupled with margin expansion and a revised full-year sales guidance of $3.8 billion, paint a picture of a business accelerating into a high-margin, high-growth trajectory.

Defense Spending as a Catalyst for Long-Term Growth

The global defense sector is undergoing a seismic shift. In 2024, global defense spending surged to a record $2.3 trillion, an 8.1% increase, driven by geopolitical tensions in Europe, the Indo-Pacific, and the Middle East. The U.S. 2025 defense budget of $850 billion—a 1.7% real-term increase from 2024—prioritizes modernization of missile systems, satellite components, and hypersonic technology. Moog is uniquely positioned to benefit from these trends.

The company's Space and Defense segment saw 11% sales growth in Q3, driven by demand for satellite control systems and missile guidance technologies. Its recent acquisition of COTSWORKS, a defense components business specializing in optoelectronics, further strengthens its portfolio in hypersonic and satellite systems—areas expected to see disproportionate spending increases. The Military Aircraft segment also reported 8% sales growth, fueled by the ramp-up of the FLRAA program, a $100 billion+ U.S. Army initiative for next-gen helicopters.

Operational Simplification Drives Margin Expansion

Moog's margin expansion is not just a function of demand—it's a result of disciplined operational simplification. The company has implemented portfolio rationalization, facility closures, and legal entity reorganization, which contributed to a 130 basis point increase in total company adjusted operating margins to 13.6% in Q3. The Space and Defense segment saw a 140 bps improvement in adjusted margins, partly due to the sale of non-core intellectual property and inventory.

While the Military Aircraft segment faced margin headwinds (down 360 bps to 8.0% on program-specific charges), these are one-time costs that are expected to normalize in 2026. CEO Pat Roche emphasized that simplification initiatives are “delivering record performance,” with a 12-month backlog of $2.7 billion, 70% of which is tied to defense and aerospace.

Free Cash Flow Strength and Capital Allocation Discipline

Moog's Q3 free cash flow of $93 million—120% conversion—highlights its operational efficiency. However, the company revised its full-year guidance to 30–50% conversion, citing increased working capital needs to support inventory builds for elevated demand. This moderation is a feature, not a bug: it signals Moog's proactive preparation for a multi-year defense spending cycle.

The company's capital allocation strategy is equally compelling. While it's reinvesting in growth (e.g., COTSWORKS acquisition), it's also poised to return value to shareholders. With a projected $3.8 billion in 2025 sales and a free cash flow yield of ~12% (based on $450 million in full-year FCF), Moog offers a rare combination of reinvestment potential and shareholder-friendly returns.

Why Invest Now?

The investment case for Moog hinges on three pillars:
1. Secular Defense Growth: Defense spending is no longer a cyclical play—it's a structural tailwind. With NATO nations targeting 2% of GDP for defense and the U.S. prioritizing hypersonic and space capabilities, Moog's addressable market is expanding.
2. Margin Expansion: Operational simplification is unlocking profit pools. The company's adjusted operating margin of 13.6% in Q3 is 300 bps above its 2023 level, and this trend is expected to continue as restructuring charges fade.
3. Capital Appreciation Potential: At a forward P/E of 18x (vs. 22x for the S&P 500) and a P/FCF of 15x, Moog trades at a discount to peers despite superior growth prospects.

Risks and Considerations

While the case is strong, investors should monitor tariff pressures and R&D costs in the Military Aircraft segment. However, Moog's pricing power and diversification across defense subsectors mitigate these risks. Additionally, the company's recent simplification initiatives have created a more agile balance sheet, with $1.2 billion in cash and $2.5 billion in total debt.

Conclusion

Moog Inc. is a textbook example of a company aligning with a secular growth story while executing on operational excellence. With defense budgets surging globally, margin expansion on track, and free cash flow strength intact, the stock offers an attractive entry point for long-term investors. The time to act is now—before the next phase of defense spending translates into outsized earnings growth.