Aerojet Rocketdyne: We Move To Distribute Rating (AJRD)

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Farewell, Old Friend

Aerojet Rocketdyne stock has been very, very good to us in staff personal accounts and in our subscription service Growth Investor Pro here on Seeking Alpha. We’ve written about the name extensively – you can see all our public notes on the name here. Our most recent public post is here.

The company has a storied history, cycling through many owners; in the hands of CEO Eileen Drake who joined in late 2015, the company has delivered superb fundamentals – meaning backlog growth, revenue growth, margin performance and sheer cash generation. The company agreed to be acquired by Lockheed Martin in late 2020, a $56/share deal inclusive of a planned $5/share special dividend. This deal was nixed in the regulatory review process, ostensibly due to LMT’s prior behavior in vertical integration situations.

As the deal collapsed so too did the relationship between the management team and the lead shareholder (whose principal was Chairman of the Board at AJRD) Steel Partners. A proxy fight followed which saw the management team prevail.

The company was then put up for sale whereupon the stock popped nicely.

This process concluded with the company today agreeing to be acquired by L3Harris (LHX), a defense electronics business with a growing space business and a stated desire to become the ‘sixth prime’ in defense. This is a $58/share cash deal. Full page chart, here.

We believe the prudent investor would now sell into this news. It’s always possible a better deal comes along, but it’s also possible that this deal fails. So, M&A 101 rules apply, as was the case for Maxar Technologies last week (see our note here). We move to ‘Distribute’ rating and believe the time is right to take gains.

Cestrian Capital Research, Inc – 19 December 2022.

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