Ducommun (DCO)

Aerospace and defense company Ducommun (NYSE:DCO) met Wall Streets revenue expectations in Q3 CY2025, with sales up 5.5% year on year to $212.6 million. Its non-GAAP profit of $0.99 per share was 3.9% above analysts’ consensus estimates.

Company Overview

California’s oldest company, Ducommun (NYSE:DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Ducommun’s peers and competitors include Virgin Galactic (NSYE:SPCE) and Park Aerospace (NYSE:PKE)

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Ducommun grew its sales at a sluggish 4.1% compounded annual growth rate. This was below our standard for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Ducommun’s annualized revenue growth of 3.5% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

Ducommun also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Ducommun’s backlog reached $563 million in the latest quarter and averaged 2% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, Ducommun grew its revenue by 5.5% year on year, and its $212.6 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 9.5% over the next 12 months, an improvement versus the last two years. This projection is admirable and suggests its newer products and services will catalyze better top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Ducommun was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.7% was weak for an industrials business.

Looking at the trend in its profitability, Ducommun’s operating margin decreased by 12.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Ducommun’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, Ducommun generated an operating margin profit margin of negative 37.7%, down 45.2 percentage points year on year due to $100 million in non-recurring legal and restructuring charges. 

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Ducommun’s unimpressive 5.5% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Ducommun, its two-year annual EPS growth of 12.6% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, Ducommun reported adjusted EPS of $0.99, in line with the same quarter last year. This print beat analysts’ estimates by 3.9%. Over the next 12 months, Wall Street expects Ducommun’s full-year EPS of $3.45 to grow 21.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Ducommun has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.4%, lousy for an industrials business.

Taking a step back, an encouraging sign is that Ducommun’s margin expanded by 8.7 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Ducommun historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.8%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Ducommun’s ROIC averaged 2.9 percentage point decreases over the last few years. This quarter's low ROIC was due to $100 million in non-recurring legal and restructuring charges. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Ducommun reported $123.2 million of cash and $271.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $125 million of EBITDA over the last 12 months, we view Ducommun’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $6.96 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Ducommun beat analysts’ EPS expectations this quarter on in line revenue. On the other hand, its EBITDA slightly missed. Zooming out, we think this was a mixed quarter. The stock traded up 1.8% to $93.81 immediately following the results.

Updated: December 3, 2025 at 10:54 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Ducommun, you should also grasp the company’s longer-term business quality and valuation.

Ducommun isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue growth was uninspiring over the last five years. And while its rising cash profitability gives it more optionality, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining operating margin shows the business has become less efficient.

Ducommun’s P/E ratio based on the next 12 months is 21.8x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $108 on the company (compared to the current share price of $89.96).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.