Aerojet Rocketdyne Holdings, Inc. AJRD
AJRD's rocket franchise is eroding as Blue Origin and SpaceX displace it; aggressive accounting and ~$900M ignored liabilities mask 5x leverage and 40-60% downside to $13-$20.
Thesis
Spruce Point argues that Aerojet Rocketdyne, formerly Gencorp, is a structurally challenged propulsion business whose stability is an accounting illusion. Disruptive low-cost rivals Blue Origin and SpaceX are taking platform share — Blue Origin's BE-4 displaced AJRD's AR1 on ULA's Vulcan rocket, eliminating an estimated $300M of revenue, while NASA's RS-25/SLS program winds down and key missile programs (Standard Missile, THAAD) are budgeted to decline 2-35% in 2019/2020. Management masks the slowdown through subjective contract adjustments, exploding unbilled receivables, and a new revenue standard that obscures comparability — Spruce Point estimates EBITDAP margins are inflated 610bps and operating cash flow grew only 2.3%, not the 18.8% reported. With ~$900M of off-balance-sheet liabilities (environmental, pension, leases) ignored, true Net Debt/EBITDA is 5.1x, not -0.3x, supporting a Strong Sell at $13-$20 (40-60% downside).
SCQA
Aerojet Rocketdyne is a U.S. rocket-propulsion and missile-systems prime that historically earned oligopolistic margins from cost-reimbursable contracts with NASA, the Air Force, and missile defense customers like Lockheed and Raytheon.
Disruptive entrants Blue Origin and SpaceX are displacing AJRD on flagship platforms (ULA Vulcan, SLS), key DoD programs are budgeted to decline, and management is masking the erosion with aggressive accounting, executive departures, and weak governance.
Sell AJRD: write down inflated EBITDAP, surface ~$900M of ignored liabilities (environmental, pension, leases), and re-rate the equity on conservative 1.0-1.3x sales or 9-10x adjusted EBITDAP multiples.
Spruce Point's adjusted price target of $13-$20 per share implies 40-60% downside from $34.03, reflecting both a multiple compression and recognition of off-balance-sheet liabilities that take true leverage to 5.1x.
The three reasons
- 1
Market ignores ~$900M of liabilities, making AJRD 5x more levered than it appears
- 2
Key revenue programs (AR1/ULA, RS-25, missile defense) winding down — 5% decline, not 4% growth
- 3
Aggressive accounting inflates EBITDAP margin by 610bps; insiders selling, executives quietly departing
Primary demands
- Sell or short AJRD: Strong Sell rating with $13-$20 price target
- Recognize ~$900M of off-balance-sheet liabilities (environmental, pension, leases) ignored by Street
- Discount management's adjusted EBITDAP and headline growth as inflated by aggressive accounting
- Scrutinize governance: CFO's CPA misrepresentation, audit-chair turnover, board independence
KPIs cited
Pattern membership
Precedents cited
- Maxar Technologies / MacDonald Dettwiler (Spruce Point short, shares collapsed 90%)
- XPO Logistics (acquisition-fueled cover for deteriorating fundamentals)
- Miller Energy Resources (accounting fraud where General McPeak was Lead Director)
- School Specialty Inc. (adverse audit opinion under James Henderson)
Composition what's on the 57 slides
Slide gallery ·
Notes
Classic Spruce Point short-report template: cinematic cover image (rocket engines in industrial bay) with 'Ready, Aim, Blow-Up' subtitle and Strong Sell rating. Argues by analogy to its prior Maxar Technologies short success. Stake size is not explicitly disclosed (only confirms a short position in disclaimer). 'Author' attributed to founder Ben Axler since the firm's About slide centers him personally; document is firm-branded with no signature block. Multi-pronged thesis combining (a) competitive disruption from Blue Origin/SpaceX, (b) aggressive accounting / financial obfuscation, (c) governance red flags (CFO CPA misrepresentation, audit chair turnover, executive departures), (d) hidden ~$900M of off-balance-sheet liabilities. Heavy use of annotated price chart (p9) and CEO/CFO quote contradictions throughout.