Loar: Ignore The Premium, Buy The Growth

Loar Holdings posted record Q2 results with sales up 39.4% and adjusted EBITDA up 47.4%, while also raising 2026 guidance. Profitability is being capped by GAAP net income pressure from higher interest and amortization tied to debt-funded acquisitions, though free cash flow remains strong and leverage is manageable at 3.1x EBITDA. Net effect is constructive on growth and outlook, offset by higher leverage/downgrade risk if operations or future M&A execution falter.

Analysis

LOAR is still being valued like a growth compounder, but the important mechanism is leverage conversion, not just top-line momentum. If organic growth stays above the mid-teens and free cash flow keeps compounding, the stock can keep working for 1-3 months as investors look through GAAP dilution from amortization; the rerating path is tied to cash earnings per share and deleveraging, not reported net income.

The bigger second-order effect is competitive in M&A: if LOAR can keep paying up for niche aerospace assets while staying near 3x leverage, it raises the clearing price for private bolt-ons and indirectly pressures other serial acquirers such as HEI and TDG. But the flip side is that any hiccup in integration, end-demand, or refinancing spreads will hit equity value disproportionately because interest expense is already doing the damage before operating results roll over.

Contrarian take: the market may be over-focusing on GAAP EPS weakness and underweighting the quality of cash flow, which can support multiple expansion if guidance keeps rising. The thesis breaks if leverage moves back above ~3.5x EBITDA, FCF conversion weakens, or organic growth decelerates for even one quarter; at that point the stock becomes a de-rated levered industrial rather than a compounder. Time horizon matters: near-term reaction should be positive, but 6-18 months depends on disciplined capital allocation, not further debt-funded expansion.

Key Decisions for Investors

• Buy LOAR on any post-print weakness over the next 3-5 trading days; the cleanest setup is a 6-12 month hold for FCF-driven deleveraging, not a momentum chase.
• If already long, keep size modest and use a soft risk limit: trim if net leverage trends toward 3.5x EBITDA or if management signals another large acquisition before debt paydown.
• Pair trade for 1-3 months: long LOAR / short an aerospace-industry beta proxy such as ITA if the market overreacts to GAAP EPS; the long should be driven by organic growth and guide raise while the short hedges sector multiple compression.
• Do not initiate an options long unless implied vol is cheap relative to post-earnings realized move; the better expression is cash equity because the upside case is slow multiple expansion, not a binary catalyst.
• Watch the next quarter for FCF conversion and interest coverage rather than reported EPS; if cash conversion slips or refinancing costs rise, the equity story likely stalls and a short/reduce becomes more attractive.