Defense Contractor Graham Corporation Rises On Robust Earnings

Investment Thesis - Graham Corporation (NYSE:GHM) has received Strong Buy ratings from Seeking Alpha, the Quant system, and Wall Street analysts, with earnings per share expected to rise over 76% in fiscal 2025 and a projected share price increase of nearly 27% over the next year [2] Company Overview - Graham Corporation designs, manufactures, and sells critical equipment for the oil refining, petrochemical, and defense industries, and has diversified into the defense and space sectors through acquisitions, including Barber-Nelson Inc. in June 2021 and P3 Technologies, LLC in November 2023 [3] - The company aims for 8% to 10% average annual organic revenue growth and low to mid-teen adjusted EBITDA margins by the end of fiscal 2027 [3] Financial Performance - In Q1-2025, Graham reported a 5% increase in revenue to a record $50 million, with net income growing by 12% to $3.0 million and adjusted EBITDA remaining stable at $5.1 million [6] - The backlog increased from $322 million to $396.8 million year-over-year, with 35% to 45% expected to convert into sales within the next twelve months [6] - The company ended the quarter with no debt and $21.6 million in cash, indicating strong financial health [6] Growth Prospects - The company’s revenue, EBITDA, and net income have shown signs of recovery after a significant decline a decade ago, with revenue expected to reach between $200 million and $210 million in fiscal 2025 [9] - Analysts expect low double-digit revenue growth in fiscal 2026, with consensus revenue estimates for March 2026 at approximately $206.23 million, reflecting an 11.15% year-over-year growth [10] Valuation - Graham's valuation metrics indicate potential overvaluation, with a D rating from Seeking Alpha, although the PEG GAAP [TTM] is at 0.63, suggesting it may be undervalued relative to its growth prospects [14][15] - The share price has increased nearly 60% over the past year, with a one-year price target of $35.75, indicating a potential 26.91% increase [15][17]