Loar Holdings Inc. (LOAR) stock intrinsic value fair value estimate & owner earnings analysis

Loar Holdings makes and sells specialized aircraft components: mechanical and electromechanical parts, interior latching and securing devices, lighting, fans and motors, and similar proprietary products sold to aircraft makers and to airlines and operators for replacement and repair. About 71% of 2025 net sales were in the United States. Sales were $496 million in 2025, up 23% from 2024; organic sales, excluding acquisitions, rose 12.7%, led by aftermarket commercial (+18.5%), defense (+16.2%) and new-aircraft commercial (+9.3%). Management points to a high backlog of firm orders as the main near-term organic driver. How we measured earnings. We start from operating cash flow, strip out the swing in working capital, and subtract stock compensation and the part of capital spending needed to maintain the business (growth spending is excluded). On that basis owner earnings were $117 million in 2025 ($1.22 per share) and $63 million in 2024 ($0.69 per share). Because the company carries large debt, we then add back cash interest ($25 million in 2025) to see the cash the business itself produces before its lenders: about $142 million in 2025. Value is then calculated for the business first, and the company's debt is subtracted afterward. The company has been public only since May 2024 and reshaped itself with acquisitions, so we treat 2025 as the earnings base rather than averaging earlier periods, and 2023 is not comparable. Large amortization of acquired intangibles ($39 million in 2025) is a non-cash charge that is added back; we handle the fact that those intangibles wear out through the slower and eventually declining growth path after year ten, not by cutting today's earnings. Acquisitions already paid for. In December 2025 Loar bought LMB Fans & Motors for $475 million, and in January 2026 it bought Harper Engineering for $250 million, financed largely with new term loans. Because the debt that paid for them is deducted, we credit the earnings they bring. From the company's disclosed pro forma figures we derive that LMB earns roughly $28 million a year before interest and acquisition amortization (about $22 million after tax), a modest 4-5% return on the price paid. Harper's earnings are not separately disclosed; from the rise in sales during the first half of 2026 we estimate roughly $50 million of annual sales and credit about $11 million of after-tax cash in the base case. This estimate is the least certain input in the analysis. Growth from future acquisitions is not credited: the company has done many deals, but the pace, size and reliance on borrowed money and share issuance are not a steady, self-funded process. New products, market share gains, margin expansion and a general recovery in air travel are also left out because they are not locked in. Base case: business value about $2.5 billion ($26.32 per share) less debt of about $991 million ($10.36 per share) = about $15.96 per share. Starting cash flow is about $175 million a year, growing 8% in year one (below the 18% growth in business cash flow per share in 2025, and well below the 12.7% organic sales growth), then 6%, 4%, 3% and 2%, then flat through year ten, because only the order backlog and the proven aftermarket pull-through are treated as secured. After year ten we assume earnings decline about 6% a year as the aircraft programs and acquired customer relationships age; the installed base of parts on aircraft flying for decades is what keeps earnings going, but nothing named supports growth there. The debt figure includes the term loans and revolver (about $949 million at June 30, 2026), finance leases, cash above operating needs deducted, a $55 million earn-out payable to Harper's sellers if it meets financial targets (assumed paid in this case), and about $66 million extra because the loans carry an interest rate near 8% (SOFR plus 4.25%), well above the 6% we use, for the roughly 3.6 years until they mature. Bear case: business value about $1.6 billion ($17.06 per share) less debt of about $960 million ($10.04 per share) = about $7.03 per share. Harper contributes no earnings, no earn-out is paid, and the starting cash flow is cut 10% ($148 million) for the higher material and labor costs and tariffs the company itself flags, with no growth for ten years and a 8% annual decline after. The debt carries a higher cost of about $90 million because a leverage above 5.5 times would raise the margin. The term loans mature in May 2030 and the revolver in May 2029; even in this case business cash flow (about $148 million) comfortably covers annual interest of roughly $77 million, so the debt is serviceable, but the equity is thin. Bull case: business value about $3.5 billion ($36.76 per share) less debt of about $991 million ($10.36 per share) = about $26.40 per share. The order backlog converts at close to the 2025 organic pace (12% in year one, easing to 2% by year ten), Harper produces about $14 million after tax, and earnings decline about 4% a year after year ten. What could make this wrong. Commercial aviation is the main demand source (aftermarket and new aircraft), so a sharp drop in flying or in aircraft production would hit earnings faster than we assume in the bear case. About $1.0 billion of goodwill sits on the balance sheet from acquisitions, and the price paid for LMB implies a low return, so further write-offs are possible. Harper's earnings and the second quarter 2026 details could not be fully reconciled from the annual filing, and cash taxes are likely to rise from the low 2025 rate of about 10%, which would lower earnings modestly.