The aerospace sector continues to recover from the disruptions caused by the pandemic, with strong demand for commercial aircraft, defense systems, and space technology driving long-term growth. Amid this resurgence, several aerospace stocks appear undervalued based on their earnings potential, order backlogs, and exposure to high-demand markets. These companies may offer attractive entry points for investors seeking long-term value.
Why focus on undervalued aerospace stocks?
- Order book momentum: Many aerospace firms have record-high order backlogs, especially in commercial aviation and defense contracts.
- Global fleet expansion: Airlines are renewing fleets with fuel-efficient models, benefiting aircraft manufacturers and suppliers.
- Defense and space diversification: Several aerospace companies have exposure to growing defense budgets and commercial space programs.
- Valuation disconnect: Certain stocks trade below historical valuation multiples despite strong cash flow projections and operational recovery.
Metrics to identify undervalued aerospace stocks
Price-to-earnings (P/E) and forward P/E
Low ratios relative to peers or historical averages can signal undervaluation, especially if earnings growth is expected to rebound.
Price-to-book (P/B) and enterprise value to EBITDA (EV/EBITDA)
These multiples provide insight into how the market values a company’s assets and cash flow potential, particularly useful in capital-intensive industries.
Free cash flow
Consistent or improving free cash flow can support dividend growth, share buybacks, and debt reduction — all factors that can drive valuation re-rating.
Backlog and contract pipeline
Large, long-term contract backlogs in commercial, defense, or space segments offer visibility into future revenue streams.
Best undervalued aerospace stocks to consider now
RTX Corporation (NYSE: RTX)
- Segments: Aerospace systems, Pratt & Whitney engines, defense
- Reason for undervaluation: Short-term engine recall impact in 2023 pressured sentiment
- Why it’s attractive: Order book strength in commercial aviation and defense, improving cash flow, and attractive dividend yield
Spirit AeroSystems Holdings, Inc. (NYSE: SPR)
- Focus: Aerostructures and components for Boeing and Airbus
- Valuation: Trades well below pre-pandemic levels despite production ramp-up
- Catalyst: Recovery in 737 MAX and A320 programs expected to improve margins and revenue stability
L3Harris Technologies, Inc. (NYSE: LHX)
- Segments: Defense electronics, communication systems, aerospace solutions
- Undervaluation factors: Integration costs from recent mergers have weighed on margins
- Strengths: Strong government contracts, classified defense systems, space assets, and consistent dividend growth
Triumph Group, Inc. (NYSE: TGI)
- Business: Aerospace components and systems for OEMs and aftermarket
- Valuation: Deep value based on EV/EBITDA and price-to-sales metrics
- Turnaround story: Restructuring efforts to improve margins and streamline operations are gaining traction
Embraer S.A. (NYSE: ERJ)
- Focus: Regional and business jets, defense systems, and eVTOL development
- Valuation: Trades at discount to global peers despite steady backlog and innovation pipeline
- Potential upside: Exposure to underserved regional aircraft markets and advanced urban mobility ventures
BAE Systems plc (LSE: BA / OTC: BAESY)
- Headquarters: United Kingdom
- Segments: Defense aerospace, naval systems, cybersecurity
- Value drivers: Strong order book from NATO nations, attractive dividend yield, and low forward P/E relative to U.S. defense peers
Leonardo S.p.A. (BIT: LDO)
- Region: Italy
- Focus: Military helicopters, electronics, aircraft
- Valuation: Undervalued compared to defense peers with expanding European contracts
- Growth angle: Increased demand for surveillance and battlefield integration technologies in Europe and Asia
Undervalued aerospace suppliers to watch
Heico Corporation (NYSE: HEI)
- Segment: Aerospace replacement parts and FAA-certified components
- Why it’s interesting: Growth through acquisitions, aftermarket exposure, and operational efficiency
- Valuation angle: Premium valuation historically, but recent price weakness could offer better entry
TransDigm Group (NYSE: TDG)
- Segment: Proprietary aircraft components with high-margin aftermarket business
- Market position: Dominant in niche aerospace parts with pricing power
- Valuation outlook: Free cash flow strength supports potential long-term re-rating despite premium headline multiples
Key risks to monitor
- Supply chain delays: Ongoing labor shortages and material delays can affect production schedules and margins.
- Geopolitical factors: Sanctions, export restrictions, or international tensions may impact contract flow or supply routes.
- Interest rates and inflation: Higher financing costs can delay capital-intensive defense and aviation projects.
- Execution on ramp-up: OEMs and suppliers must deliver on increased production targets without quality or delivery issues.