Goldman Sachs initiates Arxis stock with buy rating on M&A model

Investing.com - Goldman Sachs initiated coverage on Arxis Inc (NASDAQ:ARXS) with a buy rating and a price target of $53.00. The target represents roughly 51% upside from the current stock price of $35.10. According to InvestingPro analysis, the stock appears undervalued with a Fair Value of $41.62, placing it on the platform’s Most Undervalued list.

The firm said Arxis was founded with intent to run a long-term aerospace and defense compounder model, with critical supply chain components and an acquisition platform. Goldman Sachs noted that this model has generated substantial equity value historically in the aerospace and defense end-market.

Since 2019, Arxis has completed 32 acquisitions, averaging over five per year, according to the firm. Goldman Sachs said this represents a higher pace of mergers and acquisitions than other aerospace and defense compounders.

Arxis has higher mix of defense and original equipment than other aerospace and defense compounders at a time when defense spending is growing, Goldman Sachs said. The firm added that new airplane supply is well below demand.

Relative to Goldman Sachs’ aerospace and defense supplier coverage, Arxis has one of the best organic growth, margin, and free cash profiles, the firm said. The company posted impressive revenue growth of 114% over the last twelve months, reaching $1.59 billion, while maintaining a strong gross profit margin of 48.6%. Goldman Sachs noted that future mergers and acquisitions, which it does not model, have the potential to add substantially to its estimates.

In other recent news, Arxis, Inc. successfully completed its initial public offering (IPO) on Nasdaq, raising approximately $1.3 billion in gross proceeds. The company sold 46,575,000 shares of its Class A common stock at an initial price of $28.00 per share, with the offering exceeding initial expectations due to high demand. After accounting for transaction expenses, Arxis retained $1.22 billion in net proceeds, utilizing $746 million to repay borrowings under its term loan credit facility. The remaining funds are earmarked for working capital and general corporate purposes. The IPO was upsized from an initially planned 40.5 million shares, and underwriters were granted a 30-day option to purchase an additional 6.075 million shares. The pricing of the IPO at the top end of the range reflects strong investor interest, particularly from long-only investors. Arxis’s IPO was backed by Arcline Investment Management, contributing to its successful market debut. These recent developments mark a significant financial milestone for Arxis.

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