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Security report / ESE

ESE Operating Console

ESCO Technologies has strong FY2026 operating evidence: Q2 sales, orders, backlog, A&D margin, cash flow from continuing operations, and raised adjusted EPS guidance all support the setup. The console tracks the higher proof burden: A&D conversion, Megger financing and integration, GAAP and cash validation, and the valuation response after a large share-price move.

Metadata Knowledge Lane Fallback Chart
Ticker ESE
Knowledge reviewed 2026-06-21
Links checked 2026-06-23
Chart source Local API
Module 01 / Price

Selected-Security Chart

API required

Loading ESE daily chart from the local report API.

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Module 02 / Proof window

Current Company View

Execution test
Next read Q3 FY2026 must show orders, backlog conversion, margins, and guidance holding before Megger resets leverage.
Measured base

Q2 FY2026 sales were $309.3M, entered orders were $378.2M, book-to-bill was 1.22, and backlog was $1.470B.

Main proof issue

A&D backlog and adjusted EPS need to convert into GAAP earnings, cash flow, and post-Megger debt capacity.

Valuation context

Lane market data showed $343.50 on June 18, 2026, near 42.3x the FY2026 adjusted EPS guide midpoint.

Next evidence

Q3 orders, A&D book-to-bill, segment margin, Megger close terms, GAAP/cash conversion, and ownership-flow data.

Q2 sales $309.3M Up 33.5% year over year
Entered orders $378.2M Q2 book-to-bill 1.22
Backlog $1.470B March 31, 2026
A&D Q2 sales $150.3M Up 67.7%; 28.6% adjusted EBIT margin
Q2 EPS bridge $1.91 / $1.29 Adjusted EPS / GAAP continuing EPS
H1 continuing OCF $134.6M Total OCF was $75.3M
Exposure Map

Business Profile, Segments, And Exposure

ESCO is an engineered-products portfolio. The current evidence is concentrated in A&D backlog and margins, with utility testing becoming a larger pro forma question after Megger.

Business model

Engineered niches

ESCO sells specialized naval and aerospace defense products, electric-utility testing and monitoring tools, renewable-resource measurement equipment, and RF shielding and test systems.

Disclosure map

Three segments

A&D, Utility Solutions Group, and RF Test & Measurement disclose sales, EBIT, orders, and backlog. Megger economics are not yet observable because the acquisition has not closed.

Aerospace and Defense

A&D carries the growth and margin case.

Q2 sales rose 67.7% to $150.3M, adjusted EBIT margin was 28.6%, and A&D backlog was about $1.075B.

More useful evidence

Orders staying above sales, Navy program funding, shipment timing, and margin retention.

Utility Solutions Group

Doble strength is offset by NRG weakness before Megger.

Q2 USG sales were $93.5M; Doble sales increased 11.3%, while NRG sales fell 35.8%.

More useful evidence

Megger close terms, customer retention, synergy cadence, and utility-project demand.

RF Test And Measurement

Test is recovering, but project timing remains higher risk.

Q2 sales rose 27.5% to $65.5M and segment book-to-bill was 1.42.

More useful evidence

EMC, filter, shielding, and data-center test orders converting into margin.

Government And Global Exposure

Program and supply-chain timing are part of the proof burden.

FY2025 direct and indirect U.S. Government sales were about 23% of continuing revenue; international customers were about 34%.

More useful evidence

Budget execution, contract timing, tariff cost, freight cost, and component availability.

Value Driver Board

Relative Value And Value Drivers

Valuation is already capitalizing strong execution. The useful question is which evidence can support the premium after Megger changes the capital structure.

A&D conversion
$1.075B A&D backlog

Backlog and Q2 book-to-bill are the main revenue-visibility support.

Next: orders above sales, shipment cadence, Navy funding, and segment margin.
Margin quality
28.6% A&D adjusted EBIT margin

Volume and price helped margins, but inflation, mix, restructuring, and amortization matter.

Next: GAAP margin, adjusted EBIT bridge, and cost pass-through.
Cash conversion
$134.6M H1 continuing OCF

Continuing cash flow is strong, while total OCF was lower after discontinued-operation cash use.

Next: free cash flow, working capital, capex, and debt capacity.
Megger capital structure
$2.35B consideration

The transaction includes cash, debt financing, and equity large enough to reset dilution and leverage.

Next: final debt, interest cost, synergies, retention, and integration milestones.
Guidance Tests

Guidance Path And What Changed

Management raised FY2026 adjusted EPS guidance twice while keeping revenue guidance at $1.29B-$1.33B. The test is whether guidance quality holds in GAAP earnings and cash flow.

Question
Can the FY2026 guide hold?

Confirm Q3 adjusted EPS inside the $2.05-$2.15 guide and no reduction to full-year revenue or adjusted EPS.

Warn on guide cuts, weaker segment orders, or a lower second-half margin bridge.

Question
Are orders converting?

Confirm orders remain above sales and A&D backlog stays stable or grows.

Warn if A&D book-to-bill falls below 1.0 for multiple quarters or program timing slips.

Question
Is adjusted EPS clean enough?

Confirm GAAP EPS, free cash flow, and debt capacity improve with adjusted EPS.

Warn if acquisition amortization, restructuring, or cash leakage keeps widening the quality gap.

Operating Evidence

Operating Evidence And KPIs

These are the evidence gates that decide whether strong backlog is becoming reported earnings and cash.

Orders / book-to-bill
$378.2M / 1.22

Orders are the cleanest current read on revenue visibility.

Total backlog
$1.470B

Backlog supports the growth case, but timing and margin still need proof.

A&D adjusted EBIT
$43.1M

Segment margin was 28.6% in Q2 FY2026.

GAAP / adjusted spread
$0.62

Q2 adjusted EPS excluded after-tax charges, mostly acquisition amortization.

Capital Ledger

Financial Quality And Capital Allocation

Pre-Megger liquidity is not the same as post-Megger leverage capacity.

Financial quality

Cash flow is good, but adjusted quality still matters

At March 31, 2026, ESCO had $92.3M of cash, $145.0M of borrowings, and about $52.7M of net debt. H1 continuing operating cash flow was $134.6M, while total operating cash flow was $75.3M after discontinued-operation cash use.

Capital allocation

Megger resets leverage and dilution

Megger consideration is about $2.35B, with roughly $0.9B cash and about $1.4B of ESCO equity. The financing package includes a $500M revolver, a $500M term loan A, and an expected term loan B of up to $500M at close.

Position Board

Competitive Position

ESCO has credible niches. The current multiple requires those niches to keep producing cash after a large utility-platform acquisition.

What ESE has

A&D content

Specialized naval, aerospace, and signature-management products show demand in orders, backlog, and segment margin.

Utility testing platform

Doble has utility diagnostic relevance, and Megger would add products, scale, and international reach.

Cash generation

Continuing operations generated strong H1 FY2026 operating cash flow before Megger closes.

What is not proven

Megger economics

Post-close leverage, interest cost, synergies, retention, and integration performance are not yet visible.

Program durability

Government and naval backlog still depends on funding, awards, timing, and execution.

GAAP and cash bridge

Adjusted EPS needs to be validated by GAAP earnings, free cash flow, and debt paydown capacity.

Street View

Ownership, Flows, Valuation, And Street Views

Street-view items are dated outside views. Use them for dispersion and cadence, not as primary operating evidence.

Official source map

Q2 release, call, and presentation are posted

ESCO's quarterly-results page checked 2026-06-23 listed the Q2 FY2026 call, earnings release, and earnings presentation.

Dashboard use: primary routing for operating evidence and presentation material. ESCO quarterly results
StockAnalysis forecast

$385 average target

Page viewed 2026-06-23 showed 4 analysts, Buy consensus, $345 low, and $420 high; its data note said last checked June 18, 2026.

Dashboard use: post-repricing target dispersion near the current share price. StockAnalysis ESE forecast
MarketBeat forecast

$410 average target

Page viewed 2026-06-23 showed 5 analyst ratings, Buy consensus, $400 low, and $420 high.

Dashboard use: second aggregator with different methodology and coverage count. MarketBeat ESE forecast
Flow and valuation watch

Megger issuance is the visible flow item

The filed lane did not verify primary current short-interest or passive-ownership data. The known flow issue is Megger equity consideration of about 5.10M shares.

Dashboard use: refresh short interest, holder concentration, and Form 4 activity before treating flow as current. Knowledge lane
Scenario Board

Scenario Assessment And Sensitivities

The base case is selective conversion with a larger proof burden, not a de-risked industrial cycle.

Base

A&D orders and backlog convert, Test contributes, USG remains strategically attractive, and Megger closes on broadly expected terms while valuation stays evidence-sensitive.

Upside

A&D conversion stays clean, cost pressure remains manageable, Megger synergies become credible, and GAAP/cash results validate adjusted EPS.

Downside

A&D orders weaken, Megger financing or integration slips, adjusted EPS fails to turn into cash, or cost shocks compress margins and the multiple.

Trigger Stack

Monitoring Triggers

These are business evidence checks. Chart overlays remain in the shared overlay rules, outside this page.

Q3 results

Orders and guide check

Confirm orders above sales, stable or growing A&D backlog, and guidance tracking the raised FY2026 range.

Warn if orders weaken, segment margin falls, or management cuts the second-half guide.

Megger

Close terms and first integration evidence

Confirm final debt sizing, financing cost, share issuance, synergy targets, and retention indicators are credible.

Warn on a delayed close, higher-than-expected financing cost, reduced synergy targets, or early retention problems.

GAAP and cash

Adjusted EPS quality

Confirm GAAP EPS, free cash flow, and debt capacity improve with adjusted EPS.

Warn if adjusted EPS rises while GAAP EPS, free cash flow, or post-deal deleveraging capacity does not follow.

Costs and supply chain

Input-cost pass-through

Confirm price/cost execution absorbs freight, tariff, metals, energy, and component pressure.

Warn if cost pressure overwhelms margin despite healthy backlog.

Risk Punch Cards

Risks, Invalidations, And Quality Flags

The main risks are evidence failures: order conversion, Megger execution, adjusted-to-GAAP quality, program timing, and cost pass-through.

Valuation execution
Basis

The stock rerated sharply and traded near 42.3x the FY2026 adjusted EPS guide midpoint in the lane snapshot.

Warning

Multiple compression even when reported results look solid.

Reduce concern

Clean A&D conversion, stable guide, and GAAP/cash validation.

Megger financing and integration
Basis

Megger is large relative to ESCO and brings debt, equity issuance, integration, and synergy risk.

Warning

Close delay, higher financing cost, weaker synergies, or retention issues.

Reduce concern

Clear close terms, synergy cadence, customer retention, and cash conversion.

A&D program timing
Basis

A&D is the largest profit engine and has government and naval exposure.

Warning

Book-to-bill below 1.0 for multiple quarters, slower conversion, or funding slippage.

Reduce concern

Orders above sales, stable backlog, and margins holding with shipments.

Adjusted EPS quality
Basis

Q2 adjusted EPS exceeded GAAP continuing EPS because acquisition amortization and charges were excluded.

Warning

Adjusted EPS improves while GAAP EPS, free cash flow, or debt paydown do not.

Reduce concern

Cleaner GAAP bridge and cash flow that supports post-deal debt capacity.

Ownership data gap
Basis

Short interest and passive ownership were not verified from a primary current source in the lane.

Warning

Large price move plus unverified flow data makes reaction risk harder to size.

Reduce concern

Updated short-interest, holder, and Form 4 source checks.

Input-cost shock
Basis

Freight, energy, tariff, metals, and component costs can affect margins and delivery cadence.

Warning

Margin compression without a clear price/cost bridge.

Reduce concern

Price increases and mix offset cost pressure while backlog converts.

Diagnostics

Diagnostics, Freshness, And Known Unknowns

Freshness is explicit because this page is a projection of a filed source lane, not a canonical research refresh.

Freshness

No stale source warning
Source run

Latest filed security source run generated 2026-06-21T18:39:13Z.

Market data

Lane market snapshot ended June 18, 2026; local daily OHLC coverage reaches June 22, 2026.

Web check

Official IR, SEC, and outside-view forecast links checked 2026-06-23.

Known unknowns

Proof still missing
Megger economics

Post-close leverage, final term loan B size, interest cost, retention, and synergies are not yet visible.

Management Q&A

Full earnings-call transcript set was not retrieved in the latest source pass.

Ownership flows

Short interest, passive ownership, and holder concentration still need primary current verification.

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