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

In the published model solve dated 2026-Q2, anchored at $274.02, ESCO TECHNOLOGIES INC. (ESE) is priced for today's economics sustained for ~9.6 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/ESE

Headline

What The Price Assumes (Inversion)

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

Solve inputs: computed at a 9.8% cost of capital; growth searched up to the 25% self-funding ceiling.

How unusual the bet is: n/a

Valuation X-Ray

The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.

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.

Families that justify the price: Relative, 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=13)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

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

Bullet Takeaways

• Borrowings amount to roughly half of a single year of operating profit on continuing operations, after about 270 million dollars of proceeds from the July 2025 sale of VACCO Industries went primarily to paying down debt, and the share count has not grown in four years.
• That balance sheet is about to be spent: a signed agreement to buy Megger Group for 2.35 billion dollars, made up of 922 million dollars in cash and 5.10 million newly issued shares, adds close to a fifth to the share count and comes with a new secured credit facility of up to 1.5 billion dollars.
• Third-quarter results are due August 6, 2026; the Megger closing is expected in fiscal first-quarter 2027 and remains subject to antitrust, foreign-investment and defence-security clearances.

Bull Case

The balance sheet is the tell. A company whose borrowings amount to about half a year of operating profit on continuing operations, with liquid assets covering half of what it owes and a share count that has drifted down slightly over four years, is a company whose management has options and knows it. Most of the credit for that goes to one decision. In July 2025 ESCO sold VACCO Industries to RBC Bearings for net sales proceeds of approximately 270 million dollars and used the money primarily to pay down debt, exiting the Space business in the process. Selling a profitable subsidiary because it does not fit is a harder decision than buying one, and the proceeds went to the least glamorous possible use.

What that cleared the way for was a rebuild of the aerospace and defence business around navy work. The 10-K sets out the order book plainly: "By operating segment, 2025 orders were $895.6 million related to A&D products (including $364.2 million of Maritime acquired backlog), $403.5 million related to USG products, and $265.7 million related to Test products". Backlog in that segment finished the year at 803.0 million dollars against 385.6 million dollars a year earlier. Backlog is the most honest forward indicator a defence supplier has, because it is signed. Roughly 69% of total firm orders sit with domestic customers, which in this business means the U.S. Navy and its primes.

Underneath the defence story the smallest segment is compounding fastest. Test net sales reached $65.5 million in the second quarter of fiscal 2026, up 27.4% from the same quarter a year earlier, with the first half up 27.1%. That business, ETS Lindgren, designs and builds the chambers and instruments that measure and control radio-frequency energy, and the 10-K describes it as "an industry leader in designing and manufacturing products and systems to measure and control RF energy" serving medical, health and safety, and electronics customers. Demand for shielded test environments rises with every new wireless standard and every new device that has to be certified. It is a quiet toll on the electromagnetic spectrum.

The utility business is the third leg and the least cyclical. Doble's diagnostics sit inside the maintenance budgets of electric utilities, which do not stop testing transformers because the economy slows. USG closed fiscal 2025 with segment backlog of 143.4 million dollars against 120.0 million dollars a year earlier, and against its own comparable set the segment's peers earn solid returns: BMI at an 18.9% operating margin, MWA at 19.2% and POWL at 19.8%. This is not a business that needs a bull market.

Which brings the argument back to the balance sheet, and to Megger. Management is using a clean capital structure to buy a business roughly a quarter of its own market value in electrical test and measurement, adjacent to what Doble already does. Whether that is a good use of the balance sheet is the open question. That the balance sheet existed to be used at all is the result of three years of deliberate decisions, and it is the strongest evidence available that management believes its own compounding story.

Bear Case

Something has been quietly slipping in the margin line while the growth headlines got better. Company EBIT reached $46.3 million in the second quarter of fiscal 2026 against $36.6 million a year earlier, a large increase. As a share of net sales, though, that was 15.0% versus 15.8%. Across the first half of the year the same pattern holds, 14.1% against 14.5%, on the company's own definition of segment EBIT in the 10-Q. Growth is arriving and it is arriving at lower incremental profitability than the business used to run at. That is what buying growth looks like on the way in.

And the growth is being bought. Of the 895.6 million dollars of aerospace and defence orders booked in fiscal 2025, 364.2 million dollars came in as acquired Maritime backlog rather than as orders the existing business won. The revenue increase in that segment leaned heavily on one end market, with a $94.1 million rise in navy revenues and a $39.8 million rise in commercial aerospace, partly offset by a $5.2 million decline in defence aerospace. Concentration in navy programmes is a real position, and it is also a single customer with a single budget process and a habit of restructuring programmes.

The accounting carries the receipts. Intangible amortization from prior deals is estimated at approximately $80 million in fiscal 2026, approximately $67 million in 2027, and approximately $46 million a year from 2028 through 2030. That is a substantial charge running through reported profit for the rest of the decade, and it exists because the earnings base was purchased rather than built. The gap between what this company earns on paper and what it collects in cash is largely that charge, and a reader deciding which number to believe should notice that only one of them reflects what was paid for the assets.

Now the same machine is being pointed at something four times larger than anything before it. Megger costs 2.35 billion dollars, of which 922 million dollars is cash and the rest is 5.10 million newly issued shares, a share count that has been flat for four years suddenly rising by close to a fifth. Funding the cash half required a new credit agreement providing a 500 million dollar secured revolver, a 500 million dollar term loan A and a term loan B expected to reach a further 500 million dollars, all secured by a first-priority lien on the assets. A company that has spent three years earning an unlevered balance sheet is about to spend it, and the facility that replaces the old one is secured where the old one was not. That is the lenders' opinion of the new risk, expressed in collateral.

None of this would matter much at a modest price. It matters here because the price is not modest. Today's valuation requires this business to hold growth at the fastest rate it can self-fund for roughly eleven straight years, and the multiple sits at the very top of its peer distribution. History is unkind to that: only about 15% of comparable fast-growers held such a pace even a decade. The bear case is not that ESCO is a poor business. It is that the price already assumes flawless serial acquisition for a decade, at the precise moment the company is levering up and diluting to make the largest and least tested acquisition it has ever attempted.

Valuation

Eleven years is a long time to hold a growth rate. That is roughly what today's price asks for: operating profit compounding at the fastest pace the business can fund out of its own cash flow, sustained for about eleven years, which works out to the market paying about 51 times company-wide operating income on last fiscal year's continuing-operations figure. The calculation runs at a 9.8% cost of capital, and it is not hair-trigger sensitive: a percentage point more of required return trims the horizon by a modest amount rather than collapsing it. The demand is the duration, not the rate.

Two references make that demand concrete. Against its own peer group the multiple sits at the very top of the distribution, well past the upper quartile. Against history, only about 15% of comparable fast-growers sustained a pace like this for as long as a decade. Neither number says the outcome is impossible. Both say it is the exception rather than the pattern.

The methods split the way they usually do when a price is carrying a long duration. Peer-multiple approaches land closest, with the price about 21% above them, and the cash-flow methods land above today's price by carrying the growth rates the business has recently posted across a long explicit forecast. The static methods do not come near: the price sits about 119% above where the asset-value family lands and about 213% above the earnings-power family. Those lower readings are capitalizing what the business currently produces, with no growth credited at all. The distance between them and the price is the entire forward bet, stated in one number.

There is a wrinkle in the reported profit worth understanding before comparing multiples to peers. Fiscal 2025 net income includes the gain on the VACCO sale, which was accounted for as a discontinued operation, while operating profit reflects only continuing businesses. The two lines are not on the same basis, and pairing them produces an effective tax rate that cannot be real. On the continuing-operations basis that matters for valuation, the first half of fiscal 2026 produced $84.6 million of EBIT on the company's own definition.

Against the cohort the operating economics are respectable rather than exceptional. Inside the aerospace and defence comparison set HEI earns a 23.5% operating margin and CW 18.4%, with TDG far above at 46.5%, while in the utility set BMI runs 18.9% and KEYS 18.2%. ESCO's reported profitability sits below the best of those on a continuing-operations basis, which makes the top-of-distribution multiple harder to defend on current economics alone.

The balance sheet is the one place where the reading is unambiguous, and it is about to change. Borrowings amount to about half a year of operating profit on continuing operations, liquid assets cover roughly half of what is owed, and the share count has been flat to slightly lower over four years. On closing of the Megger transaction, the company takes on secured term debt and issues 5.10 million shares. Every leverage and per-share figure in the trailing record describes a company that will not exist in that form after the deal closes.

Catalysts

The largest transaction in the company's history is signed and has not closed. On April 15, 2026, ESCO agreed to buy the entire share capital of Megger Group Limited from TBG AG for approximately 2.35 billion dollars, consisting of 922 million dollars in cash and 5.10 million shares of common stock, with a post-closing adjustment for net debt and working capital payable in cash. Closing is conditioned on Hart-Scott-Rodino clearance, approval from the Committee on Foreign Investment in the United States, clearance from the Defense Counterintelligence and Security Agency, and foreign merger-control approvals, with an outside date of April 15, 2027. Management has guided to a fiscal first-quarter 2027 close and roughly 60 million dollars of expected cost synergies.

The financing is already arranged. On May 29, 2026 the company entered a new credit agreement led by JPMorgan Chase providing a 500 million dollar senior secured revolving facility, a 500 million dollar term loan A, and a term loan B expected to be up to a further 500 million dollars once syndicated, all effective only upon the acquisition closing and replacing the existing unsecured agreement. Watching the term loan B syndication is the cleanest available read on what the credit market thinks of the combined company.

Third-quarter fiscal 2026 results are scheduled for release after the close on August 6, 2026. The two things worth watching in that report are whether Test can hold the growth rate it posted in the March quarter, when net sales rose 27.4% year over year, and whether the EBIT margin stabilizes after two consecutive periods of running below the prior year on the company's own segment definition.

Peer Cohorts (Per Segment, With Filing Citations)

Aerospace & Defense (A&D) (reported)

• HEI (HEICO CORPORATION)
• FY2025 10-K: …and business aircraft, aircraft engines and related components and equipment. Due in large part to our established industry presence, we enjoy strong customer relations, name recognition and repeat business. We sell our products to a broad customer base consisting of domestic and foreign commercial and cargo…
• FY2025 10-K: …misappropriation or obsolescence from occurring by developing new techniques and improving existing methods and processes, which we will continue on an ongoing basis as dictated by the technological needs of our business. We believe that, based on our competitive pricing, reputation for high quality, short lead time…
• CW (CURTISS-WRIGHT CORPORATION)
• FY2025 10-K: …investments in research and development ("R&D") to fuel both innovation and organic growth. We also utilize a strong and healthy balance sheet to implement a disciplined capital allocation strategy prioritized by acquisitions as well as returns to shareholders, principally through share repurchases as well as…
• FY2025 10-K: …avionics and electronics, flight test equipment, and aircraft data management solutions. The Naval & Power reportable segment is comprised of businesses that primarily provide products to the naval defense and power & process markets, and to a lesser extent, the aerospace defense markets. The products offered include…
• TDG (TransDigm Group Incorporated)
• FY2025 10-K: ; (5) defense OEMs; (6) system suppliers; and (7) various other industrial customers. Our top ten customers for fiscal year 2025 accounted for approximately 40% of our net sales. Products supplied to many of our customers are used on multiple platforms. None of our customers individually accounted for greater than 10%…
• FY2025 10-K: …following table sets forth, for the periods indicated, certain financial information by reportable segment, which includes a reconciliation of EBITDA As Defined to consolidated income from continuing operations before income taxes (in millions): Fiscal Year Ended September 30, 2025 Power & Control Airframe…
• MOG-A (MOOG Inc.)
• FY2025 10-K: …in aerospace and defense and industrial markets. We have four operating segments: Space and Defense, Military Aircraft, Commercial Aircraft and Industrial. Additional information describing the business and comparative segment revenues, operating profits and related financial information for 2025, 2024 and 2023 are…
• FY2025 10-K: …and existing fleets. Commercial Aircraft. We design, manufacture and integrate primary and secondary flight-critical control systems and products for various commercial aircraft including widebody, narrowbody, business jets and regional jets for both OEM and aftermarket customers. Our large commercial production…
• DCO (DUCOMMUN INCORPORATED)
• FY2025 10-K: …from commercial aircraft could be affected as a result of 7 Table of Contents changes in new aircraft orders, or the cancellation or deferral by airlines of purchases of ordered aircraft. Further, our revenues from commercial aircraft programs could be affected by changes in our customers' inventory levels and…
• FY2025 10-K: …services primarily to the aerospace and defense industries. Our subsidiaries are organized into two strategic businesses, Electronic Systems and Structural Systems, each of which is an operating segment as well as a reportable segment. Electronic Systems designs, engineers and manufactures high-reliability electronic…
• TXT (Textron Inc.)
• FY2025 10-K: …or defense industries could have a significant effect on the demand for new products and technologies under development, which could have an adverse effect on our financial condition and results of operations. In addition, our investments in equipment or technology that we believe will enable us to obtain future…
• FY2025 10-K: …in the development and acceptance of new products or certification of new aircraft and other products occur from time to time and could adversely affect our results of operations. These delays or cost overruns could be caused by unanticipated technological hurdles, production changes to meet customer demands,…
• HII (HUNTINGTON INGALLS INDUSTRIES, INC.)
• FY2025 10-K: …U.S. defense spending priorities that reduce the demand for the types of ships we build and services we provide increase our exposure to market competition risk. If we are unable to compete successfully, we may generate lower revenues and lose market share, which would negatively impact our financial condition,…
• FY2025 10-K: Security, and Unmanned Systems, and specializes in a wide range of services and products across our groups. All-Domain Operations Designs, develops, integrates, and manages the sensors, systems, and other assets necessary to support integrated C5ISR operations and accelerated decision-making. These business activities…

Utility Solutions Group (USG) (reported)

• ITRI (Itron, Inc.)
• FY2025 10-K: …gas distribution safety, non-revenue water reduction, revenue assurance, distributed energy resources (DER) management, energy forecasting, consumer engagement, and smart payment. Utilities leverage these outcomes to unlock the capabilities of their networks and devices, improve the productivity of their workforce,…
• FY2025 10-K: …and municipalities to safely, securely, and reliably operate their critical infrastructure. Our solutions include the deployment of smart networks, software, services, devices, sensors, and data analytics that allow our customers to manage assets, secure revenue, lower operational costs, improve customer service,…
• BMI (BADGER METER, INC.)
• FY2025 10-K: …of radio endpoints, along with remote telemetry units, providing customers with a choice of industry-leading options for communicating data from hardware into use-specific software applications. The Company's hardware-enabled software solutions provide insights and analytics critical to the holistic management of our…
• FY2025 10-K: …deductible for tax purposes. The intangible assets acquired are primarily developed technology, customer relationships and trademarks with estimated average useful lives of 12 to 20 years. The Company also assumed $1.6 million of payables, $18.3 million of net deferred income tax liabilities, $12.2 million of…
• MWA (MUELLER WATER PRODUCTS, INC.)
• FY2025 10-K: …is in the process of transitioning from manually read meters to electronically read meters; however, we expect this transition to be relatively slow and that many end users will be reluctant to adopt brands other than their historically preferred brand. Our principal competitors in water metering products and systems…
• FY2025 10-K: …Index to Financial Statements Water Management Solutions Net sales for 2025 were $604.8 million as compared with $559.2 million in the prior year, an increase of $45.6 million or 8.2%, primarily as a result of higher sales volumes in hydrants and repair and installation products as well as higher pricing across most…
• POWL (Powell Industries, Inc.)
• FY2025 10-K: …support increased schedule flexibility and multiple ship lanes for the varied needs and project timelines of our customers. The incremental capacity is initially expected to support the Company's oil and gas customers but can be utilized to support each of our market sectors. Construction is expected to begin during…
• FY2025 10-K: …in the market. In the commercial and other industrial markets, our customers operate in commercial construction, data centers, metals and mining, pulp and paper, as well as other industrial applications. Beyond these major markets, we also provide products and services to the light rail traction power market and…
• AEIS (ADVANCED ENERGY INDUSTRIES INC)
• FY2025 10-K: …to our global customers. We design, manufacture, sell and service precision power products that transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into various types of highly controllable, usable power that is predictable, repeatable, and…
• FY2025 10-K: …server power market. We believe our capabilities in advancing new power solutions for next-generation AI-based server racks position us to participate in the continued growth in this market. Industrial and Medical Market The Industrial and Medical market is fueled by continued investment in complex manufacturing…
• KEYS (KEYSIGHT TECHNOLOGIES, INC.)
• FY2025 10-K: …and other corporate infrastructure expenses. Segment allocations are determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to, or benefits received by, the segments. Newly acquired businesses are not allocated these charges until integrated into our shared…
• FY2025 10-K: …aerospace, defense, and satellite equipment prime contractors, subcontractors, and related component suppliers. Government customers include a range of government agencies, such as departments and ministries of defense, security agencies, and related government research entities. Our customers need to accelerate the…

Test (reported)

• KEYS (KEYSIGHT TECHNOLOGIES, INC.)
• FY2025 10-K: …period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. Goodwill and other intangible assets. We review goodwill for impairment…
• FY2025 10-K: -12B/A 8/13/2014 10.4 10.3 Trademark License Agreement, dated August 1, 2014, by and between Agilent Technologies, Inc. and Keysight Technologies, Inc. 10-12B/A 8/13/2014 10.5 10.4 Real Estate Matters Agreement, dated August 1, 2014, by and between Agilent Technologies, Inc. and Keysight Technologies, Inc. 10-12B/A…
• NATL (NCR ATLEOS CORPORATION)
• FY2025 10-K: Member 2025-12-31 0001974138 us-gaap:ForeignPlanMember us-gaap:PensionPlansDefinedBenefitMember us-gaap:DefinedBenefitPlanRealEstateMember 2024-12-31 0001974138 us-gaap:ForeignPlanMember us-gaap:PensionPlansDefinedBenefitMember srt:MinimumMember us-gaap:DefinedBenefitPlanRealEstateMember 2025-12-31 0001974138…
• FY2025 10-K: Agreement (with Relative TSR Metric) under the NCR Voyix Corporation 2017 Stock Incentive Plan (Exhibit 10.9.10 to the Annual Report on Form 10-K of NCR Voyix Corporation for the year ended December 31, 2023) 10.28. 7 * Form of 2024 Restricted Stock Unit Award Agreement (Performance-based Awards) under the NCR Atleos…
• MRCY (MERCURY SYSTEMS, INC.)
• FY2025 10-K: …indicate our goodwill may be impaired. Indicators of impairment include, but are not limited to, a significant deterioration in overall economic conditions, a decline in our market capitalization, the loss of significant business, significant decreases in funding for our contracts, or other significant adverse…
• FY2025 10-K: …the Company combines closely related contracts when all the applicable criteria are met. The combination of two or more contracts requires judgment in determining whether the intent of entering into the contracts was effectively to enter into a single contract, which should be combined to reflect an overall profit…
• AEIS (ADVANCED ENERGY INDUSTRIES INC)
• FY2025 10-K: …us-gaap:ForwardContractsMember us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0000927003 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2024-01-01 2024-12-31 0000927003…
• FY2025 10-K: 13) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2025. Ernst & Young LLP, an independent registered public accounting firm, has audited our…
• MTSI (MACOM Technology Solutions Holdings, Inc.)
• FY2025 10-K: …of expected demand, included the following, among others: • We tested the effectiveness of controls over inventory, including those over the estimation of reserves for excess quantities and obsolescence and the review of any adjustments to the reserve methodology. • We selected a sample of inventory parts and…
• FY2025 10-K: -gaap:FairValueMeasurementsRecurringMember 2024-09-27 0001493594 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2024-09-27 0001493594 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

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.