ESCO Technologies reports robust Q2 25 results

Published: 2025-07-08 02:12:27 ET ESE

Published on 07/08/2025 at 02:12, updated on 07/08/2025 at 04:01

By Rachel Harp

ESCO Technologies demonstrated robust yearly performance, showcasing substantial net income growth for Q2 25. The latest financial results highlight strong fundamentals, driven by strategic acquisitions and innovative product offerings. These acquisitions are expected to be value-accretive and bolster the company's revenue growth. Overall, analysts hold positive views on ESCO Technologies, reflecting confidence in its future prospects. Since the announcement, the company's stock has risen 16.6%, further underscoring market confidence in its strategic direction and financial health.

US-based ESCO Technologies Inc. was established in 1990 . It provides engineered products and solutions across a range of growing industries, including aerospace, defense, space, healthcare, wireless, consumer electronics, electric utilities, and renewable energy. The company specializes in designing and manufacturing filtration, fluid control, and naval products, such as hydraulic filter elements, fluid control devices, and precision-machined components.

In addition, ESCO Technologies develops, manufactures, and delivers diagnostic testing and data management solutions that assist electric power grid operators in assessing the integrity of high-voltage power delivery equipment. The company also designs and produces products and systems for measuring and controlling RF and acoustic energy, serving research and development, regulatory compliance, and medical and security applications.

The company has about 3,250 employees and operates across three main segments: Aerospace and Defense (44% of FY 24 revenue), Utility Solutions Group (36%), and Test segment (20%). Revenue distribution by geography is as follows: The US (72%), Asia (11%), Europe (9%), Canada (5%) and other regions (3%).

ESCO Technologies released its Q2 25 results on May 7, 2025, reporting a decent 6.8% y/y increase in revenue to $266m. This growth was driven by high demand in Navy, commercial aerospace, utility, and test markets, along with acquisitions like ESCO Maritime Solutions. EBIT rose 30.1% y/y to $43.1m, with margins expanding by 289bp to 16.2%. Net profit rose 33.6% y/y to $31m.

Following the announcement, the company's stock jumped about 16.6%. In addition, it reported a Book-to-Bill ratio of 1.10, highlighting its strong market position. Entered orders increased by 22% to approximately $290.8m, resulting in a record backlog of $932m, a 6% rise from the previous year.

On April 28, 2025, ESCO Technologies Inc. announced the completion of its acquisition of Signature Management & Power (SM&P) from Ultra Maritime for $550m in cash. SM&P, a key provider of signature and power management solutions for US and UK naval defense markets, will enhance ESCO’s Navy businesses by increasing content on US Navy submarine and surface ship programs and expanding into UK and AUKUS navy platforms. SM&P will join ESCO’s Aerospace & Defense segment, offering complementary products like magnetic and electric field countermeasures and ultra-quiet motors for ship propulsion systems. This acquisition aligns with ESCO’s strategy to strengthen its position in high-growth markets.

ESCO Technologies posted a strong revenue CAGR of 12.8% over FY 21-24, reaching $1,030m. EBIT increased at a CAGR of 21.5% over the same period, reaching $147m in FY 24, with margins expanding from 11.5% to 14.3%. Net income rose at a CAGR of 17.1% to $102m in FY 24.

Consistent growth in net profit led to positive FCF over FY 21-24, reaching $79.6m in FY 24 from $70.4m in FY 21. Cash and equivalent reached $65.9m at end-FY 24 from $56.2m at end-FY 21. The group's total debt decreased to $216m at end-FY 24, compared to $180m at end-FY 21. In addition, total debt to equity improved from 21.2% to 14.5%.

In comparison, its local peer Badger Meter, Inc., reported a higher revenue CAGR of 17.8% FY 21-24, reaching $827m in FY 24. Operating income increased at a CAGR of 26.2% to $158m in FY 24. However, net income outperformed over the same period, rose at a CAGR of 27.1% to reach $125m in FY 24.

Over the past 12 months, the company's stock has delivered robust returns of approximately 86.1%. In comparison, Badger Meter delivered lower returns of about 27.8%.

ESCO Technologies is currently trading at a P/E of 34.9x, based on FY 25 estimated EPS of $5.5, which is higher than its 3-year historical average of 28.4x but lower than that of Badger Meter (51x). The company is currently trading at at an EV/EBIT multiple of 24x, based on FY 25 estimated EBIT of $213.6m, which is higher than its 3-year historical average of 20.4x but lower than Badger Meter’s valuation of 27.7x.

ESCO Technologies is liked by three in the four analysts who follow it; two have ‘Buy’ ratings, one has an ‘Outperform’ rating, while the other one has ‘Hold’ rating. The stock has reached its average target price of $187.5, suggesting limited upside potential at present.

Analysts’ views are further supported by an anticipated revenue CAGR of 15% over FY 24-26, reaching $1,359m. In addition, analysts estimate EBIT CAGR of 32.9% to $256m, with margins expanding from 14.1% to 18.9% in FY 26. Net profit CAGR of 28.2%, reaching $168m with margins expanding from 9.9% to 12.3% in FY 26, with EPS expected to increase to $6.5 in FY 26 from $3.9 in FY 24. Likewise, analysts estimate EBIT CAGR of 14.4% and net profit to grow at a CAGR of 14% for Badger Meter.

Overall, ESCO Technologies has demonstrated strong financial performance and strategic growth through acquisitions, positioning itself well in high-growth markets. The company's innovative product offerings and robust fundamentals have garnered positive analyst opinions, reflecting confidence in its future prospects. However, the company faces several risks, including supply chain disruptions, varying demand in key markets like defense and aerospace, and potential impacts from inflation that could affect profit margins and operational costs.

Rachel Harp