ESCO Technologies An Underappreciated Gem With Massive Growth Potential, Analyst Says

Stephens analyst Tommy Moll reiterated an Overweight rating on ESCO Technologies Inc ESE with a price target of $120.

The analyst considers ESCO Technologies an underappreciated global provider of highly engineered products/ solutions for mission-critical applications in markets benefiting from substantial, enduring tailwinds.

Moll is remarkably upbeat about the company's high-quality portfolio of filtration/fluid control/pyrotechnics and close-tolerance machined parts (bushings/pins/sleeves).

The analyst thinks ESE is moving toward double-digit organic earnings growth, which should, in tandem with sharper working capital focus, augment ROIC to double-digits over time.

Given today's low-leverage (<1x) balance sheet, Moll believes ESE will deploy debt in acquiring businesses over time, with attractive growth prospects in adjacent markets, enabling synergistic post-deal integration.

In the longer term, the analyst sees potential for ESE to establish a more rhythmic M&A program, consistently contributing a modest amount of growth most years.

However, to have significant M&A capacity, the company is assumed to have ~10x EBITDA acquisition multiples and a pro forma 2.0x-2.5x leverage ratio (vs. <1x currently), the analyst adds.

Overall, Moll expects more investors to gravitate to ESE's highly visible growth in electric utilities and commercial aerospace. 

Price Action: ESE shares are trading higher by 1.58% to $106.58 on the last check Monday.