Ducommun $DCO ( ▼ 0.77% ) is a 175-year-old aerospace and defense manufacturer that makes the parts inside the parts inside the planes and missiles you never think about — until they fail. They’re not supposed to fail. That’s the business model.

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Ducommun has been around since the California Gold Rush. Today, that means high-performance parts for aerospace and defense — where “good enough” is not good enough. Their products go into “high-cost-of-failure applications”: if the part fails, a plane crashes, a missile misfires, or a helicopter goes down. The tagline could honestly be “We make the things that can’t break.”

Electronic Systems ($462.7M revenue, 56.1% of total) 🧠 ↗️ — the nervous system of an aircraft: cable assemblies and interconnect systems, printed circuit boards, lightning diversion systems (keeping lightning from turning your 737 into a firework), radar enclosures, avionics racks, shipboard communications, illuminated cockpit switches, RF switches, and motors and resolvers. It grows faster (+7.3% YoY ↗️) with better margins (17.8% operating margin ↗️), powered by military and space — missiles, classified work, radar.

Structural Systems ($362.0M revenue, 43.9% of total) 🦴 ↗️ — the skeleton and skin: large aerostructure components machined from aluminum, titanium, and Inconel (a heat-resistant superalloy that sounds like a Marvel villain); winglets, fuselage panels, engine components; composite and metal bonded structures (wing spoilers, rotor blades, flight controls); ammunition handling systems; aerodynamic systems for rotorcraft and business jets (via the 2023 BLR Aerospace acquisition); plus seals and O-rings. Big improvement year (+$21.5M in operating income ↗️) from winding down an underperforming Monrovia, California facility; operating margin jumped from 7.0% to 12.8%.

The model rests on long-term relationships with aerospace and defense OEMs: get designed into platforms early and you’re in for the program’s 20-40 year life. Most contracts are firm fixed-price, so Ducommun bears the cost risk — a feature (predictable revenue) and a bug (margin risk). Because custom parts can’t be repurposed, revenue is recognized as work progresses (“cost-to-cost”), creating large contract assets ($249.8M at year-end) — work done but not yet billed.

At the top of the A&D supply chain sit the OEMs/Prime Contractors — Boeing, Lockheed Martin, Northrop Grumman, RTX. Ducommun competes across Tier 1, 2, and 3, climbing toward Tier 1 via complex integrated assemblies rather than simple components — the difference between selling LEGO bricks and pre-assembled LEGO sets, which command higher prices and stickier relationships.

Ducommun doesn’t name competitors in the 10-K (classic move), but in this space they face TransDigm Group (proprietary components with pricing power), Heico Corporation (aerospace parts and repair), Moog Inc. (precision motion control), Kaman Aerospace, and smaller specialists.

Their moat isn’t patents. It’s relationships (175 years of not screwing up), technical expertise that takes years to replicate, expensive aerospace certifications, and program incumbency — once you’re on a 737 MAX or F-35, switching costs are enormous.

RTX and Boeing together are 31.2% of revenue — a lot of eggs in two baskets. Those revenues span dozens of programs, so no single contract loss tanks the company; but when Boeing has a bad year, Ducommun feels it.

Boeing has been… a lot. The FAA’s early-2024 quality investigation, Boeing’s July 2024 guilty plea to conspiracy fraud charges, and frozen 737 MAX production rates all hurt Ducommun’s commercial aerospace revenues, down 7.4% ↘️ in 2025. The silver lining: Boeing recently got FAA clearance to lift 737 MAX production from 38 to 42 planes per month — positive, but gradual.

Defense is a genuine bright spot. Military and space revenues grew 14.1% ↗️ in 2025, driven by missiles, classified programs, radar, and rotary-wing aircraft. With President Trump calling for a $1.5 trillion FY27 defense budget (vs. $901B approved for FY26), the macro backdrop looks favorable — though congressional authorization is always a wildcard.

The mix shift toward defense (53.4% to 58.2% ↗️) matters: those contracts are more stable, longer-duration, and less prone to Boeing-style drama.

Gross and Adjusted EBITDA margins are improving consistently — the real operational story. Net margin went negative in 2025 purely from the $107.3M Guaymas settlement. Strip it out and the business is meaningfully better.

A June 2020 fire damaged Ducommun’s Guaymas, Mexico facility, spreading to a neighbor that sued in November 2023. In October 2025, Ducommun settled for $150 million — $56 million covered by insurance, a net hit of $94 million — plus two smaller subrogation claims for $1.4M and $4.0M. A one-time event (they believe no material claims remain), but it’s why 2025 looks ugly on GAAP and why debt rose from $243M to $305M ↘️.

A $1.2B backlog against $824.7M in revenue is roughly 1.46 years already contracted, with about $844M expected to deliver in the next 12 months — genuinely good visibility.

After the November 2025 refinancing: a $200M term loan (matures November 2030), $105M drawn on a $450M revolving credit facility (also November 2030), $344.8M of unused revolving capacity, and a weighted average interest rate of 6.10% ↘️ (down from 7.25%). They also hold $150M notional in interest rate swaps through January 2031. Net debt-to-Adjusted EBITDA is roughly 1.9x — elevated but not alarming for an industrial with stable government contracts, and the 2030 maturity gives time to pay down.

At ~$164.90 per share (as of the analysis date), the math is hard to make work. Our DCF across scenarios tells a consistent story:

Key Assumptions: revenue growth of 4.5-5.0% near-term, declining to 3.0% by Year 5; EBITDA margins expanding from 16.4% to 18.5-19.5% by 2030 (achievable but execution-dependent); WACC of 9.8-10.7%.

The Core Problem: even the optimistic scenario has the stock priced for perfection. At current prices you’re paying roughly 54x normalized free cash flow — software territory, not a 175-year-old manufacturer growing 5% a year. The EV/Revenue multiple of ~2.1x also sits above the typical 0.8-1.5x range for Tier 1/2 suppliers.

Ducommun is a genuinely good business in a good industry with improving fundamentals — the 175-year track record, growing backlog, improving margins, and defense exposure are all real positives. The problem isn’t the business; it’s the price. At current levels the stock prices in everything going right at once, leaving asymmetric downside. If you love the story, put it on your watchlist and wait for a better entry. The business will likely still be here — it’s been around since the Gold Rush.

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Disclaimer: This guide is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The information contained in this report has been obtained from sources believed to be reliable, but StrataFinance does not guarantee its accuracy, completeness, or timeliness.