MOOG INC. (MOG-A) stock intrinsic value fair value estimate & owner earnings analysis

Moog designs and builds precision motion-control systems: flight-control actuation for military and commercial aircraft (including the Lockheed Martin F-35 and Boeing and Airbus airliners), controls for missiles, satellites and launch vehicles, and electric and hydraulic motion components for industrial machinery. Much of the work is sole-source content on aircraft and defense programs that stay in service for decades, which creates a long tail of spare-parts and repair business. Boeing alone was 10% of fiscal 2025 sales, and Lockheed Martin is another major customer. About 63% of sales are booked in the United States. How we measured cash earnings. We start from operating cash flow, strip out year-to-year swings in working capital, subtract stock-based pay, and subtract the capital spending needed to keep the business running. Two judgements matter here. First, Moog has been acquiring a growing amount of equipment through finance leases ($47 million in fiscal 2025 and $63 million in the first nine months of fiscal 2026). We count that as capital spending, because it is. Second, we leave actual pension contributions in the numbers as a real cash cost. On this basis, owner earnings per share over fiscal 2016-2025 were $3.92, $4.37, $1.16, $5.19, $4.99, $3.92, $3.99, $1.36, $4.43 and $5.87. Cash earnings run well below reported profit (fiscal 2025 diluted EPS was $7.33) because capital spending, including leased equipment, has run near 5% of sales, about twice depreciation, while Moog expanded capacity. The 2018 dip reflects an unusually large pension contribution, and the 2023 dip reflects peak capital spending. Amortization of acquired intangibles is only about $10 million a year, so it does not distort the picture. Because we value the business before its lenders, we add back cash interest ($71 million in fiscal 2025). Our anchor is the median of fiscal 2019-2025, a window that covers the pandemic slump in commercial aerospace and the recovery. Over that window, cash flow before interest ran at a median 5.8% of sales, and the median per share was $6.14. Fiscal 2025 came in above that at $8.09 per share, up 25% on the year. Because sales grew about a third over the window, we apply the 5.8% median margin to roughly $4.4 billion of fiscal 2026 sales. That sales figure is essentially already delivered, since the fiscal year closes in early October 2026 and nine-month sales were $3.27 billion. We do not lift the level for the strong third quarter of fiscal 2026. That quarter included about $35 million of prior-year R&D tax credits, about $30 million of tariff refund claims and an $8 million one-time tax benefit, none of which recur. Moog's growth also ties up a lot of cash: working capital (mainly unbilled receivables and inventory) absorbed about $605 million over the last ten years. So in every case, each dollar of added sales is charged 30 cents of extra working capital. Base case ($100.87 per share). Sales grow 6% in fiscal 2027, backed by a twelve-month backlog of $3.3 billion that was up 23% from a year earlier. They grow 4% in 2028, 3% a year through 2032 and 2% a year through 2036. That is below the roughly 4% a year Moog has averaged over the last decade, a pace that included small acquisitions. The cash margin stays at its 5.8% median. After the working-capital charge, year-one cash flow before interest is about $191 million ($5.96 per share), below the $8.09 earned in fiscal 2025, so the near-term path does not assume the recent pace continues. After year 10 the level holds flat for 20 years and then fades to zero over the following decade. We see that as defensible because Moog's content on long-lived platforms such as the F-35, 787, A350 and missile programs earns aftermarket revenue for as long as those fleets fly. The business is worth about $4.32 billion ($134.55 per share). Less debt of $1.08 billion ($33.68 per share), that leaves $100.87 for shareholders. Bear case ($43.08 per share). Sales stall at about $4.4 billion for a decade as the current backlog converts but is not replaced. Possible causes include Boeing production problems (Boeing is 10% of sales, and Moog's annual report notes that Boeing keeps evaluating the size, scope and cost of its supplier base) and lower U.S. defense spending, which the company names as a risk to its sales. The cash margin sits at 4.5%, between the 2023 trough of 3.1% and the 2022 level of 5.4%, reflecting a return of the heavy capital spending and cost pressure Moog actually experienced in 2023. Earnings hold flat for ten more years and then fade to zero by year 30. We also charge the cost of refinancing the $500 million 4.25% notes due December 15, 2027 at about one point above our 6% rate. The business is worth about $2.46 billion ($76.76 per share). Less $1.08 billion of debt, that leaves $43.08. Cash flow of about $198 million a year still covers roughly $71 million of interest comfortably. Bull case ($164.15 per share). Sales grow 8% in fiscal 2027 and 6% in 2028 as the larger backlog converts, then about 4.3% a year, Moog's demonstrated ten-year pace, through 2036. The cash margin is 7.0%, a level Moog actually achieved in fiscal 2019 (7.6%), 2020 (7.1%) and 2025 (6.7%). The level holds for 30 years beyond year 10 and fades over the next ten. The business is worth about $6.35 billion ($197.83 per share). Less $1.08 billion of debt, that leaves $164.15. Debt. At June 27, 2026 Moog owed about $908 million under its bank credit facility and the 2027 notes, plus $172 million of finance lease obligations. We treat its roughly $67 million of cash as needed to run a global operation. Bank covenants cap net debt at 4.0 times EBITDA and require at least 3.0 times interest coverage, and Moog is well inside both. Moog also sells up to $125 million of receivables under an agreement that matures December 11, 2026. If that agreement were not renewed, more cash would be tied up in working capital, though the economics of the business would not change. What has changed since our previous estimate. We previously valued Moog at about $40 per share in the base case. That estimate used higher, risk-adjusted discount rates, and it charged each year's working-capital swings directly against cash earnings. We now discount every case at a single 6% rate and carry the risk in the cases themselves. We remove timing swings in working capital but charge working capital explicitly for growth, and we count leased equipment as capital spending and lease obligations as debt. Our growth assumptions are now lower than before (about 3% a year in the base case versus 6% previously, and 4.3% in the bull case versus 10%). The higher value comes mainly from the discount rate and the treatment of working capital, not from a more optimistic outlook. What would make this wrong. If capital spending stays near 5% of sales permanently and margins slip toward the 2023 level, value would move toward the bear case. A sustained cut in F-35 or Boeing widebody production, or a large loss on a fixed-price development program, would also push it that way. If the stronger cash generation of fiscal 2025 (a 6.7% margin) proves durable, and capital spending eases back toward depreciation once the current capacity build is finished, the bull case becomes more likely.