ESCO TECHNOLOGIES INC. (ESE): what the price requires

At today's price, ESCO TECHNOLOGIES INC. (ESE) is priced for today's economics sustained for ~11.1 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-19 · Source: https://boothcheck.com/report/ESE

Headline

FieldValue
TickerESE
CompanyESCO TECHNOLOGIES INC.
Current price$320.93/sh
CompositionPoint in time 55% / Over time 45%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Must persist for11.1y
Multiple paid50x operating income

Solve inputs: computed at a 9.9% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2.1 years.

How unusual the bet is: elevated

ReferenceValue
cohort percentile (of 178 peers)77
sustained it ~10 years at this level15%
implied end-window share0%

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset2.14x4expensive
Earnings3.05x4expensive
Relative1.26x5expensive
Growth1.13x3expensive

Families that justify the price: Growth Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.1%); the inversion above states its own rate.

Per-Model Detail (n=16)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$210.401.53xyesFCF base $0.2B, growth 11% (input: historical growth), terminal g 4.0%, WACC 9.1%, 6yr projection
DCF Exit MultipleGrowth$332.620.96xyesExit EV/EBITDA: 90.1x / 92.1x / 94.1x (bear / base = today's held flat / bull), 6yr
Relative ValuationRelative$255.581.26xyesP/E 28x (static sector reference · 2026-04), scenarios: 23.3x / 28.0x / 32.7x (bear / base = reference held flat / bull), EV/EBITDA 41.64x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$128.432.50xyesBV/sh $61.12, ROE (TTM) 19.4%, ke 9.3%
Two-Stage Excess ReturnAsset$184.091.74xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$284.411.13xyesRev $1.2B, growth 11% (input: historical growth; tapered), Terminal P/S: 5.9x / 7.0x / 8.2x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$142.682.25xyesEPS $11.89, growth 1% (input: historical EPS growth), PEG=19.24 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$0.0132093.00xyesNormalized EBIT (5y avg op income, one-time charges added back) $0.01B × (1−23%) / WACC 9.1% → EPV (no growth) (excluded from median)
Residual IncomeAsset$179.501.79xyesBV $61.12 + 5yr PV of (ROE (TTM) 19.4% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham NumberAsset$127.882.51xyes√(22.5 × EPS $11.89 × BVPS $61.12) — Graham's conservative floor
EV/EBITDA RelativeRelative$65.894.87xyesEBITDA $0.09B × sector EV/EBITDA 20.0x
FCF YieldEarnings$88.913.61xyesFCF $224.8M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$83.943.82xyesSBC-adj FCF $0.21B (FCF $0.22B − SBC $0.01B) capitalized at Kₑ
Ben Graham FormulaEarnings$383.650.84xyesEPS $11.89 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset——no—
P/Sales SectorRelative$273.381.17xyesRevenue $1.18B × sector P/S 6.0x
PEG Fair ValueRelative$445.870.72xyesEPS $11.89 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings YieldEarnings$128.542.50xyesEPS $11.89 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$88.5m
Net debt / NOPAT (after-tax)0.68x
Net debt / operating income (pre-tax)0.52x
Share count CAGR (buyback)-0.1%
Burning cashno

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

Bull Case

The market is pricing ESCO Technologies as a durable compounder, and the latest results are the company validating that expectation in real time. The price embeds an operating margin near 21% against a trailing 13.7%, a demanding gap, but the most recent quarter showed the margin already moving there: adjusted operating margin improved 370 basis points to 21.7% on higher volumes and pricing. When the price requires a margin expansion that the company is currently delivering, the bet stops being speculative and starts being a question of durability. ESCO raised its full-year adjusted earnings guidance to a $8.00 to $8.25 range, a 33% to 37% increase over the prior year. The fundamentals are catching up to the multiple rather than falling behind it.

The order book is the strongest part of the story and the reason the growth has visibility. Backlog reached $1.5 billion, up nearly 30% from the prior fiscal year-end, with a book-to-bill ratio of 1.22, meaning new orders are coming in faster than the company can ship them. The Aerospace and Defense segment is the engine: A&D backlog stood at $803.0 million, more than double the $385.6 million a year earlier, with 2025 A&D orders of $895.6 million including the Maritime business ESCO acquired. Revenue in the recent quarter rose 33.5%, with organic growth of nearly 13% and the rest from the Maritime acquisition. A defense-and-aerospace supplier with a book-to-bill above one and a doubling backlog has a runway the trailing numbers understate.

The balance sheet makes the compounding self-funding. Net debt is only about $88.5 million, roughly half of trailing operating income, with interest coverage of 10.7 times, so ESCO carries almost no financial risk despite having just made a sizable defense acquisition. The share count is flat, so the earnings growth accrues per share rather than being diluted away. ESCO operates across aerospace and defense, utility test and grid solutions, and electronic test, end markets with structural demand from naval shipbuilding, commercial aerospace recovery, and grid investment. On the valuation lenses only the growth-discounted-cash-flow method reaches the price, which is the market paying for that durability, and with the margin expansion and backlog both running ahead of plan, the durability case has rarely looked better supported.

Bear Case

The capital-allocation question sits at the center of the bear case, because the recent growth was bought as much as it was built. ESCO's revenue jumped 33.5% in the quarter, but roughly 21 points of that came from the Maritime Systems acquisition, with organic growth contributing the rest. The deal materially expanded the company's defense exposure, and the A&D backlog more than doubled largely on that acquired business. Acquisitions of this size carry integration risk and the question of whether the price paid created value, and the bull case's reliance on the growth-discounted-cash-flow lens, the only method that reaches the price, depends on ESCO continuing to deploy capital into deals that compound rather than dilute. A company priced for double-digit growth has to keep finding accretive acquisitions, and that pipeline is not guaranteed.

The valuation leaves extraordinarily little room for a misstep. At roughly 53 times trailing operating income, ESCO is priced as if the margin expansion to 21% is permanent and the order growth continues for the better part of a decade, the implied duration of the bet stretches close to twelve years. The static methods all read rich: asset value, earnings power, and peer multiples each price the company far below its quote, and only the forward-growth lens justifies it. That is a structure with no valuation floor. If organic order growth normalizes from the current elevated pace, or if the margin gains plateau before reaching the embedded 21%, the stock has nothing but the growth thesis holding it up, and a quality compounder that disappoints on growth de-rates hard from a high multiple.

The concentration in defense and aerospace is the cyclical and political tail. A large share of ESCO's growth now depends on naval shipbuilding and defense programs, and the 10-K flags that government "funding effects could adversely affect our financial condition or results of operations," noting that a significant portion of certain subsidiaries' sales is program-dependent. Defense budgets, program timing, and procurement decisions are outside the company's control, and a shift in priorities or a budget constraint would hit the backlog that the entire bull case rests on. The balance sheet is genuinely clean, net debt at half of operating income, so this is not a solvency bear. It is a valuation-and-concentration bear: a richly priced compounder whose recent growth leaned on a defense acquisition and whose forward case requires both continued program funding and continued accretive M&A to hold a multiple that only the most optimistic method can justify.

Valuation

The price is making a long-duration quality bet. At roughly 53 times trailing operating income, the price requires ESCO to lift its operating margin from about 13.7% toward 21% and to sustain elevated growth for close to twelve years. That is among the most demanding assumptions a stock can carry. The one piece of reassurance is that the margin expansion is already happening: the most recent quarter reported an adjusted operating margin of 21.7%, essentially the level the price assumes, so the bet is less about whether the margin can reach 21% and more about whether it stays there for the duration the price implies.

The methods leave no doubt that this is a growth-premium stock. Asset value, earnings power, and peer multiples all price ESCO well below its quote, and only the forward-growth lens reaches the price. When only the growth method supports the valuation, the entire premium is a bet on durable compounding that the static frames structurally cannot credit. The earnings-power lens reading especially rich, at multiples of where the price sits, is the measure of how much faith the price places in the forward case. The right peer frame is the diversified aerospace, defense, and industrial-test set rather than a single broad multiple, and against that group ESCO's order momentum, a 1.22 book-to-bill and a backlog up nearly 30%, is what justifies a premium, though the size of the premium is the open question.

Solvency is a clean strength and removes any financial-distress concern. Net debt is only about $88.5 million, roughly half of trailing operating income, with interest coverage of 10.7 times and a flat share count, so ESCO funds its growth and its acquisitions from a position of near-zero leverage. That balance sheet is what lets the company keep acquiring, which matters because the recent revenue growth leaned partly on the Maritime acquisition. The decisive variable is durability: the margin has reached the embedded level and the backlog gives multi-year visibility, but at 53 times operating income the price assumes both persist for a decade-plus, so any normalization of order growth or plateau in margins would leave a high multiple exposed.

Catalysts

ESCO's fiscal second-quarter 2026 report, released in mid-May, was the central recent catalyst and it was strong on every line that matters for a compounder. Revenue rose 33.5% to $309.3 million, with organic growth of about 13% and the Maritime acquisition contributing the rest, while the adjusted operating margin expanded 370 basis points to 21.7% on volume leverage and pricing. On the back of the quarter, the company raised full-year adjusted earnings guidance to a $8.00 to $8.25 range, a 33% to 37% increase over the prior year and a record.

The order data was the forward signal. Book-to-bill reached 1.22, meaning orders outpaced shipments, and backlog climbed to $1.5 billion, up nearly 30% from the prior fiscal year-end, with particular strength in Navy, aerospace, test, and utility markets. The Aerospace and Defense backlog had already more than doubled year over year, reflecting both organic naval and commercial-aerospace demand and the acquired Maritime business. A backlog growing faster than revenue is what gives the multi-year growth its visibility.

Into the coming quarters, the figures to watch are the organic order trajectory, since the current elevated book-to-bill is what supports the premium, the continued integration of the Maritime acquisition and whether ESCO deploys its clean balance sheet into further deals, and the margin trend toward and beyond the 21% level. Defense program funding and naval shipbuilding demand are the underlying drivers of the A&D backlog. The clearest read on whether the durability thesis holds will be sustained order growth alongside the margin staying at its newly elevated level.

Peer Cohorts (Per Segment, With Filing Citations)

Aerospace & Defense (A&D) (reported)

Utility Solutions Group (USG) (reported)

Test (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

FQ2 2026 earnings release · company 10-K, FY2025

View the full interactive ESE report on boothcheck