Value Line recently initiated coverage of Astronics Corporation (ATRO) in its flagship product, The Value Line Investment Survey. Serving the aerospace and defense sectors, the company designs, develops, and manufactures high-performance lighting, electrical power, and automated testing solutions for private, commercial, and military groups. Based in West Aurora, New York, the company employs roughly 1,150 workers. Peter J. Gundermann has served the company as President and Chief Executive Officer since 2003. Astronics operates through its subsidiaries in two main segments: Aerospace and Test Systems.

The Aerospace group services the global aerospace industry. From aircraft lighting to cabin electronic platforms to airfield lighting support, the group derived 70% of its 2012 business from the commercial transport market. Other clients, including private jet proprietors and military aircraft developers, made up the balance of operations here. This somewhat lopsided distribution should prove fruitful for the company in the coming years, as commercial aircraft companies spend more money on updating and expanding their fleets while, nearly simultaneously, the military will likely be affected by a cut to the U.S. defense budget.

Astronics’ more military-centric segment, Test Systems primarily creates communications and weapon test systems. Despite all the concerns over the Pentagon’s imminent budget cuts, the nature of this group’s operations and products should help to insulate it from a considerable loss of business. For one, and unlike several defense industry peers, Astronics maintains several fruitful relationships with allied foreign militaries. Additionally, the technological focus of the Test Systems portfolio, such as its high-performance communication platforms, lends itself to higher importance than, say, a surplus of fighter jets or ammunition.

Thus, Astronics seems to have a bright future, posting historic revenues ($266.4 million) in 2012. Relatively protected from the troublesome budgetary environment through the nature and the diversity of its offerings, the small-cap company should be able to organically extend its top and bottom line over the next several years.  And in spite of a sustained price hike over the last few months, its stock looks to possess above-average appreciation potential. In the near term, a major strategic focus will be on gaining valuable market space.

Acquisitions figure to play a large role in vying for an expanded market presence. The company recently agreed to acquire the privately owned PECO for a one-time cash payment of $136 million. The deal would marry Astronics’ portfolio of aircraft lighting and electrical power products with the Oregon-based addition’s line of fuel access doors and passenger service units. One aspect of PECO’s operations that makes it an attractive opportunity is its longstanding relationship with aerospace juggernaut Boeing (BA - Free Boeing Stock Report). Mr. Gundermann noted that the move is “an excellent strategic fit,” adding that the companies’ many similarities will provide for a seamless integration. The acquisition is set to close by July 1st.

So, with a bolstered line of products amidst an improved industry landscape, Astronics should figure to grow meaningfully in the coming years. Subscribers interested in of  this small-cap aerospace/defense interior-component manufacturer are advised to consult Value Line’s quarterly reports for Astronics (ATRO), as well as any supplemental reports and relevant articles as important news items arise.

At the time this article was written, the author did not have positions in any of the companies mentioned.