Guggenheim flags Applied Aerospace & Defense as top defence pick with $30 target
Analyst Michael Ciarmoli sees 150% upside for the merchant supplier, arguing that sector fears over the Iran war and a split Congress are overblown.
Guggenheim has named Applied Aerospace & Defense, Inc. (NYSE:AADX) its top defence stock pick, assigning a price target of US$30 that implies approximately 150% upside. The designation comes as part of a broader sector review in which analyst Michael Ciarmoli initiated coverage of nearly two dozen defence names on 15 September.
Ciarmoli issued 13 Buy ratings across the sector, with an average upside of roughly 50%. The AADX target is three times that average, reflecting the analyst’s high conviction in the company’s positioning. He described AADX as a merchant supplier of established and proven military subsystems and components, noting that its products are already deployed on several existing programs.
The analyst’s thesis centres on the view that recent sell-offs in defence stocks are an overreaction to geopolitical and political risks. Specifically, Ciarmoli argued that fears regarding the Iran war and the potential for spending gridlock following a split Congress after midterm elections are overblown. He urged investors to buy the pullback, expecting increased spending on autonomous systems, space, and stockpile replenishment to sustain.
Applied Aerospace & Defense ended the second quarter with a backlog of US$1.1 billion, which supports the view that sector-wide backlogs remain robust. The company went public on 2 June this year, and according to Insider Monkey’s database, 33 hedge funds held a stake in the firm at the end of the second quarter.
However, the stock carries distinct risks compared to legacy defence primes. AADX is a controlled company with a smaller float and higher beta, meaning it has greater potential to re-rate sharply if sentiment normalises. The company has reported only one quarterly result to date, in which it posted a significant loss, and has yet to demonstrate its ability to convert its backlog into profitable growth.
Investors should note that while the sector-wide call is based on the premise that base budget spending is sufficient, a split Congress could reduce AADX’s pricing power and flexibility. The 150% upside case is an outlier within Ciarmoli’s own coverage, suggesting the stock requires more than a simple rebound in defence sentiment to reach its target.
