Aerojet Rocketdyne: Monopoly In Heavy Launch Engines

Eric DeLamarter presented his in-depth investment thesis on Aerojet Rocketdyne (NYSE: AJRD) at Best Ideas 2017.

Aerojet Rocketdyne is a $1.3 billion market cap manufacturer of propulsion systems for the defense and aerospace industries. Aerojet is a growing, high-quality business trading at 7x EV/EBITDAP and a 10% FCF yield, a substantial discount to its relative and absolute value. The convergence of a number of factors has led to this mispricing including confusion and misperception of several headlines, complex financials (e.g., it does not screen well nor appear inexpensive at first glance based on GAAP earnings and ROIC) and the underappreciated presence of real estate holdings that are being entitled, developed and sold. Nonexistent corporate communication (no earnings calls and limited investor outreach) and a lack of institutional following (cursory sell-side coverage) has not helped and likely compounded the price-value disconnect. The reality is Aerojet has strong fundamentals as missile defense is a top DoD priority, it is in fact a monopoly in several areas and has multi-year contracts that provide high financial visibility with very limited exposure to the economic cycle. There are a number of catalysts that will lead to value realization in the near and medium term.

About the instructor:

Eric DeLamarter serves as managing partner of Half Moon Capital. Prior to founding the firm in 2011, Eric was a research analyst at Stelliam Investment Management, a value-oriented hedge fund. Prior to Stelliam, from 2006 to 2008, Eric was an associate at Lineage Capital, LLC, a middle-market private equity fund. From 2003 to 2006, Eric was an investment banking analyst at RBC Capital Markets, and during 2001, Eric was an equity research associate at Merrill Lynch. Eric earned an M.B.A. from The Heilbrunn Center for Graham & Dodd Investing at Columbia Business School, with a concentration in applied value investing, in 2010 and a B.A. from the University of Michigan in 2002.

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