Executive Summary / Key Takeaways

• LOAR Holdings has built a defensible niche in proprietary aerospace and defense components, delivering record 38.7% adjusted EBITDA margins in Q3 2025 while growing sales 30%+ across key segments, demonstrating pricing power and operational leverage that support its premium valuation.
• The company's aftermarket-heavy revenue mix (55% of sales) provides annuity-like cash flows, while recent acquisitions of Beadlight and pending LMB Fans & Motors expand its addressable market and create cross-selling synergies, supporting management's confidence in sustained low double-digit growth.
• Management's conservative "meet or beat" guidance philosophy underpins a raised 2025 outlook and initial 2026 forecast of $540-550M revenue with ~39% EBITDA margins, though the 15-20% haircut to OEM production assumptions reveals execution risks in a supply-constrained environment.
• Trading at 38x EV/EBITDA and 100x P/E, LOAR's valuation leaves no room for error, with key risks including defense growth normalization from high double-digits to mid-single digits, integration challenges from the aggressive M&A pace, and potential margin pressure from public company costs.
• The critical variables to monitor are LOAR's ability to maintain pricing discipline above inflation while scaling its 20,000+ product portfolio, and whether the LMB acquisition closes in Q4 2025 to deliver the expected accretion, as execution missteps could trigger severe multiple compression.

Setting the Scene: The Aerospace Aftermarket Compounders

LOAR Holdings Inc., founded in 2012 as Loar Holdings, LLC and converted to a Delaware corporation in April 2024, operates as a family of companies focused exclusively on proprietary aerospace and defense components. The business model centers on designing, manufacturing, and selling over 20,000 unique products—none representing more than 3% of annual revenue—across four end-markets: commercial aerospace, business jet and general aviation, defense, and non-aerospace. This fragmentation is intentional, creating a diversified revenue base that insulates the company from single-program risk while building multiple avenues for growth.

The company makes money through two primary channels: original equipment manufacturer (OEM) sales, which provide the initial platform penetration, and aftermarket sales, which generate the annuity stream. The aftermarket focus is particularly valuable, representing 55% of total revenue and driven by secular tailwinds: the global passenger fleet's average age exceeding 14 years, continued strength in commercial air travel demand, and immense backlogs at Boeing (BA) and Airbus (EADSY) that ensure long-term production visibility. This positioning within the aerospace value chain—as a supplier of qualified, sole-source components—creates significant barriers to entry while enabling pricing power.

LOAR's place in the industry structure reveals both opportunities and constraints. The company competes against larger, more diversified players like TransDigm (TDG), Hexcel (HXL), Moog (MOG.A), and Spirit AeroSystems (SPR), but differentiates through its pure-play focus on proprietary, high-margin niches. While competitors grapple with broader exposure to OEM production volatility or commodity material costs, LOAR's portfolio of qualified parts enjoys aftermarket pricing dynamics that consistently deliver more price than the cost of inflation. The company's entrepreneurial and collaborative culture, fostered since its 2012 inception, allows individual business units to maintain agility while benefiting from centralized capital allocation and strategic M&A capabilities.

Technology, Products, and Strategic Differentiation

LOAR's core technology advantage lies in its proprietary product portfolio, where each component undergoes a demanding, extensive, and costly qualification process that creates significant barriers to entry. The company goes to market with intellectual property-driven designs that customers depend on for quality, on-time performance, and engineering capabilities. This proprietary nature translates into tangible economic benefits: the ability to pass along cost increases, sole-source positioning on key platforms, and relationships where customers cannot easily manage alternative suppliers without disrupting their own operations.

Four value streams drive continuous improvement. First, organic new product launches targeting 1% to 3% annual top-line growth, with management expecting to reach the higher end of this range in 2026-2027 as FAA certifications accelerate. Recent successes include five PMA brake applications completed in 2025 and a cockpit door barrier certified for Airbus narrow-body aircraft, with production starting in May 2025. Second, manufacturing and go-to-market optimization focused on one or two major productivity initiatives annually, with current emphasis on enhanced ERP systems to improve data mining and cash flow. Third, value-based pricing that consistently captures more price than inflation, contributing to the 710 basis points of EBITDA margin expansion from 2020 through 2025. Fourth, talent development, recently reinforced by hiring a Chief Talent Officer to support scaling.

The acquisition strategy amplifies these organic drivers. The July 2025 Beadlight Ltd. purchase for $32.8 million adds illumination solutions and human-machine interface products, creating top-line synergies with LOAR's seatbelt restraint operations and an "incredible" pipeline of opportunities expected to be significantly accretive in 2026. The pending LMB Fans & Motors acquisition, initially priced at $365 million and increased to $370 million, targets a global specialty player in high-performance fans and motors primarily serving European defense markets. This deal, expected to close in Q4 2025 pending French regulatory approval, will be financed through additional Credit Agreement borrowings and cash on hand, with Blackstone Credit (BX) committing a $400 million incremental facility.

Financial Performance & Segment Dynamics

Q3 2025 results demonstrate LOAR's strategy executing flawlessly. Record sales, adjusted EBITDA, and EBITDA margins of 38.7% reflect operating leverage, strategic value drivers, and favorable sales mix, partially offset by $1.5 million in Sarbanes-Oxley compliance and organizational costs that management believes are now fully reflected in results. Gross profit margin expanded 380 basis points to 52.7%, driven by the same factors.

Net income increased $19 million due to an $11.4 million discrete tax benefit from the One Big Beautiful Bill Act, higher operating income, and lower interest expense.

Segment performance reveals the breadth of LOAR's momentum. Commercial aerospace aftermarket sales grew 31.35% in Q3 to $38.2 million, with nine-month growth of 29.97% to $105.4 million, prompting management to raise 2025 guidance from high single-digit to low double-digit growth. Commercial OEM sales increased 30.56% in Q3 to $20.7 million, benefiting from higher sales across most platforms and an improving production environment. Defense sales surged 50.62% in the nine-month period to $49.2 million, driven by strong demand across multiple platforms and market share gains from new product launches, though management cautions that defense growth is inherently "choppy" and will normalize to mid-single digits in 2026. Business jet and general aviation aftermarket sales grew 25.86% in Q3, with general aviation departures setting a record above 1 million in Q3 2025.

The balance sheet provides ample firepower for continued execution. As of September 30, 2025, LOAR held $99 million in cash and cash equivalents, with $100 million in delayed draw term loan commitments and a $50 million revolving line of credit fully available. Net debt is minimal, with debt-to-equity of 0.25 and an amended Credit Agreement reducing the applicable margin by 0.50% to SOFR plus 4.25%. The company generated $81.9 million in operating cash flow for the nine months, up $47.7 million year-over-year, and used $40.3 million in investing activities primarily for the Beadlight acquisition. With no dividend and minimal financing needs, LOAR can self-fund its M&A pipeline while maintaining compliance with all financial covenants.

Outlook, Management Guidance, and Execution Risk

Management's guidance philosophy, described as the "Heather rule," prioritizes setting targets the company can meet or beat. This conservatism is evident in the 2026 outlook, which assumes Boeing 737 MAX production averages 38 per month and A320 family production averages 54 per month—representing a 15% to 20% reduction from OEM skyline projections to account for supply chain challenges and destocking. This haircut, while prudent, exposes the risk that LOAR's OEM growth could disappoint if production rates fall further or if inventory management by Tier 1 suppliers creates choppiness over 13-week periods.

The 2026 guidance calls for $540-550 million in revenue and $209-214 million in adjusted EBITDA, implying approximately 39% margins on a pro forma basis assuming all business units owned since January 2025. This represents continued expansion from the 38.2% margin achieved in the nine months ended September 2025, driven by the four value streams and acquisition synergies. Management expects commercial OEM and aftermarket growth in low double digits, defense up mid-single digits, and non-aerospace continuing to shrink toward 5% of revenue as the portfolio becomes exclusively A&D focused.

Execution risks center on three areas. First, the LMB acquisition must clear French regulatory review and close in Q4 2025 to contribute to 2026 results; delays would pressure growth expectations. Second, defense growth faces tough comparisons after 50% expansion, with management acknowledging ground vehicle bookings have improved since budget planning but still projecting normalization. Third, public company costs and Sarbanes-Oxley compliance represent ongoing headwinds that must be offset through productivity gains to maintain margin trajectory.

Risks and Asymmetries

The most material risk is valuation. At 38.34x EV/EBITDA and 100.56x P/E, LOAR trades at a significant premium to direct comps: TransDigm at 22.6x, Hexcel at 21.54x, and Moog at 15.46x. This multiple assumes flawless execution of the 2026 guidance and continued M&A success. Any disappointment in organic growth, margin compression from acquisition integration, or delays in the LMB closing could trigger severe multiple compression, particularly given the stock's limited trading history since the April 2024 IPO.

Defense growth normalization presents a near-term headwind. After delivering high double-digit expansion in 2025, management projects mid-single digit growth in 2026, citing the inherently "choppy" nature of defense procurement. While ground vehicle bookings have improved since the budget was built, the slowdown from 50% to mid-single digits represents a meaningful deceleration that could pressure revenue if new product launches don't offset the baseline slowdown. This risk is amplified by LOAR's exposure to U.S. defense budget dynamics and the audit risks inherent in government contracting.

Supply chain and inventory management issues create quarterly volatility. Management acknowledges "choppiness" in commercial OEM demand as OEMs and Tier 1s manage inventory levels, leading to "push-pull within our system as to the timing of deliveries." While the proprietary nature of LOAR's products limits the impact on aftermarket demand, the 15-20% production haircut in 2026 guidance reflects real uncertainty. Tariff noise, while currently immaterial, could become a headwind if trade policy shifts affect sourcing costs, even with LOAR's ability to pass through increases.

M&A integration risk intensifies with the aggressive pace. The Beadlight acquisition, while small at $32.8 million, had minimal impact on 2025 results (mid-single-digit millions in sales, barely breakeven EBITDA) but is expected to be significantly accretive in 2026. The larger LMB deal at $370 million represents a substantial bet that requires successful integration of European defense operations and realization of projected synergies. LOAR's history of successful integration provides confidence, but the drumbeat of one to two acquisitions per year strains organizational capacity.

Valuation Context

Trading at $66.37 per share, LOAR commands a market capitalization of $6.21 billion and an enterprise value of $6.40 billion. The valuation multiples reflect a business firing on all cylinders: EV/Revenue of 13.48x, EV/EBITDA of 38.34x, and Price/Earnings of 100.56x. These metrics position LOAR as a premium compounder, comparable only to TransDigm's EV/EBITDA of 22.6x and significantly above Hexcel's 21.54x and Moog's 15.46x.

Cash flow-based multiples tell a similar story of high expectations. Price/Operating Cash Flow of 60.57x and Price/Free Cash Flow of 67.32x reflect the market's confidence in LOAR's ability to convert revenue into cash, with operating cash flow of $54.97 million and free cash flow of $46.10 million over the trailing twelve months.

The company's balance sheet strength—current ratio of 5.92, quick ratio of 3.59, and debt-to-equity of just 0.25—provides a foundation for sustained investment and M&A, but also suggests the market is pricing in aggressive growth assumptions rather than balance sheet optimization.

Relative to peers, LOAR's premium is justified by superior growth and margins. While TransDigm achieves higher EBITDA margins (47.76% vs LOAR's 38.7%), LOAR's organic growth of 15-30% across segments exceeds Hexcel's flat performance and Moog's single-digit expansion. The key question for investors is whether LOAR can sustain this growth differential while scaling its operations and integrating acquisitions. The valuation leaves no margin for execution missteps, making the stock suitable only for investors convinced of management's ability to deliver on its conservative guidance and robust M&A pipeline.

Conclusion

LOAR Holdings has established itself as a high-quality compounder in the aerospace and defense components space, leveraging proprietary products, sole-source positioning, and an aftermarket-heavy revenue mix to deliver exceptional margins and growth. The company's record Q3 2025 performance, with 38.7% EBITDA margins and 30%+ segment growth, demonstrates the durability of its moats and the effectiveness of its four value streams. Management's conservative guidance philosophy and raised 2026 outlook provide a credible path to $540-550 million in revenue with continued margin expansion.

The investment thesis hinges on two critical variables: flawless execution of the pending LMB Fans & Motors acquisition and sustained pricing discipline in an inflationary environment. While the company's valuation at 38x EV/EBITDA and 100x P/E leaves no room for error, its balance sheet strength, cash generation, and proven M&A integration capabilities support the premium. Investors should monitor defense growth normalization, commercial OEM choppiness, and the pace of new product certifications as key swing factors. If LOAR can maintain its trajectory while absorbing Beadlight and LMB, the stock may grow into its valuation; any stumble could trigger a sharp correction in this early-stage public compounder.