Innovative Solutions & Support Inc - $ISSC
Targeting a 93% upside over the next 36 months / 4 yr projection attached
ISSC
Share Price: $12.95
Shares Outstanding: 17.60M
Market Capitalization: $228M
Total Debt: $23.30M
Cash: $0.60M
Enterprise Value: $251M
Innovative Solutions & Support (ISSC) is a niche avionics systems integrator that designs and manufactures flight navigation, autopilot, and precision flight instrumentation for both commercial and military aerospace platforms.
Based on my forward estimates, I value ISSC at $25 per share by 2028, driven by projected EPS of $1.25 and a 20x P/E multiple. This implies a potential 93% upside over the next three years.
The Honeywell Deal
Over the past two years the company has spent $54m acquiring product lines from Honeywell. These assets primarily support the F-16 fighter jet, a globally popular aircraft still in active production and widely operated by many of the United States closest allies - as well as other mission critical systems for narrowbody, widebody, and business aircraft.
The acquisitions, completed at roughly 4x earnings, have transformed ISSC’s profile, lifting the military segment to ~40% of sales. While these defense programs carry lower gross margins, they are highly sticky due to long program lives, integration into a leading platform, and strong international demand. Importantly, supplying equipment that supports allied fleets often yields better long term economics than selling solely to the U.S. military.
The 4x multiple reflected Honeywell’s decision to value execution and continuity over price - a point CEO Shahram Askarpour made clear:
“This acquisition wasn’t about the highest bidder, it was about who is actually going to be able to work well with Honeywell and their customers to have a successful transition.”
(Q3 2023 Call)
By being chosen for its ability to ensure a smooth handoff, ISSC demonstrated the operator credibility that not only enabled this deal at attractive terms but also positions it to be a natural buyer in future OEM carve outs.
The Opportunity / Catalyst
The 2024 product line acquisition has introduced some short term revenue lumpiness, but it also gives investors another chance to buy ISSC at an attractive price.
On 8/14, Askarpour wrote:
“Although the pull-forward of F-16 production into the current quarter in order to build safety stock ahead of this final transition will impact revenue over the next two quarters, we expect to drive additional growth and efficiencies once the migration is complete”
This comment triggered a 34% sell-off, as Mr. Market worried about near term results. 1 In my view, this is an overreaction.
The next six months may look messy, but once we get to mid-2026, one time acquisition costs will roll off, safety stock adjustments will normalize, and revenues should stabilize.
Modeling the numbers through this transition paints a far better picture for investors with patience - the earnings power of the Honeywell lines will become clear, and the stock should rerate accordingly.
Getting to $25 a share / Assumptions
In the short term, gross margins are harder to predict given one off charges from the Honeywell integration and safety stock buildup. However, I expect a return to ~40% gross margins in the near term, rising toward 45% longer term as SG&A normalizes and acquisition related charges roll off. With this structure, ISSC should be able to sustain ~15% net margins over time.
Recognizing that revenue will dip over the next two quarters, I model $17M in Q4.2 Beyond that, I assume the defense business grows ~5% (GDP + low-single digits), while the commercial business grows ~7%, translating to ~6.2% organic growth overall.
On capital allocation, ISSC recently secured a $100M credit facility and is looking to fully utilize its Exton, Pennsylvania plant. Given management’s record of buying at attractive prices, I model a $40M acquisition in 2028, funded by prior years cash flow. Assuming the acquisition contributes a revenue profile similar to past deals, with 45% gross margins and 15% net margins, this would add $32M in revenue, bridging to my projection of $1.25 EPS in 2028.
Importantly, ISSC’s predictable revenue base, anchored by sole sourced content on widely operated, still produced platforms like the F-16, makes it a natural strategic fit for consolidators such as Heico or TransDigm. As the market begins to recognize these qualities, I believe ISSC can rerate toward 20x earnings, consistent with premium aerospace peers and recent M&A precedents.
Comparable transactions reinforce this view:
Triumph Group (Warburg Pincus & Berkshire Partners) at ~19x EV/EBITDA3, and Barnes Group (Apollo) at ~15x EV/EBITDA4. These levels typically translate into ~22–28x earnings.
Applying a more conservative 20x P/E multiple, and assuming $150M in revenue by 2028, 15% net margins, and 18M shares, I value ISSC at $25 per share, or 93% above today’s $12.95.
Risks
ISSC has already guided that revenue will be soft over the next six months due to the safety stock build for its F-16 line. If my assumptions of $17M and $18M in quarterly revenue prove too optimistic and results come in closer to $14M, the stock could sell off sharply potentially into the $9–10 range.
Longer term, if organic growth in both the military and commercial segments stalls, it will be difficult for the company to reach the targets I have modeled.
That said, if ISSC avoids a major downside surprise in the next two quarters, I believe the outlook will likely improve, with forward estimates being revised higher. I plan to update this model quarterly to track progress, and will incorporate any new acquisitions (which I personally expect to occur before 2028) into a revised valuation.
Askarpour telegraphed this pull forward to build safety stock months before.
ISSC reports on a fiscal year that runs one quarter ahead of the calendar year (its quarter ending September 30th is considered Q4 rather than Q3). For simplicity, my model assumes a standard calendar based four quarter structure.
https://blog.janescapital.com/key-insights/top-5-largest-aerospace-defense-ma-deals-1h-2025
https://greenwichgp.com/wp-content/uploads/2025/06/GCG-AD-Q1-Industry-Update.pdf
Companies mentioned: ISSC 0.00%↑ HON 0.00%↑ TDG 0.00%↑ HEI 0.00%↑
This document is provided for informational purposes only. Historical performance is not indicative of future results and nothing in this post should be considered financial advice. The author owns shares in the companies mentioned. The views expressed are the author’s alone and do not reflect the views of any current or past employers. Special thanks to Charlie, “Yerd” and “Tao’” for their editing help.