YB new stock pitches (Thu, May 28)

VSE Corp (VSEC), a pure-play aerospace aftermarket distribution and MRO platform, closed its $2.025 billion acquisition of Precision Aviation Group (PAG) on May 5, 2026, but the stock has sold off approximately 24% over the last month despite a stellar Q1 2026 beat (revenue +27%, Adj. EBITDA +37%, EPS +50%, 15% organic growth). The selloff appears driven by mechanical pressures from a follow-on equity raise, tangible equity unit issuance, and GenNx360's $275 million registered exchangeable shares, while the market underweights the structural margin step-up from PAG's >20% EBITDA margin profile versus VSE's standalone 16.4%. Following divestitures of Federal & Defense (2024) and Fleet (2025), VSE is now 100% aerospace aftermarket across distribution (~60% of revenue), MRO (~40%), and proprietary solutions including 2,000+ DER repairs, with the combined entity operating 61 locations across 8 countries generating ~$1.75 billion run-rate revenue. Management guides 2026 revenue of $1.7-1.8 billion at 18.1-18.5% EBITDA margins (~$320 million EBITDA midpoint) with $15 million+ annualized synergies, targeting >20% consolidated margins 'over the next few years,' which the author views as conservative, modeling $420 million EBITDA for 2027 and $500 million for 2028 at 20% margins on $2.5 billion revenue. CEO Cuomo, who previously ran B/E Aerospace's parts distribution business and sold it at 15.7x EBITDA, has completed eight aviation acquisitions at VSE since 2021 and delivered four consecutive quarters of 18-39% EPS beats, recently securing an exclusive life-of-program APU distribution agreement with Pratt & Whitney Canada covering 2,500+ SKUs. Free cash flow has been poor ($51 million negative in 2024, $6 million in 2025) due to inventory builds for CFM56 engines and the P&W APU program, which management calls 'one-off nonrepeatable,' guiding FCF inflection in H2 2026 with estimates of $60 million (2026), $200 million (2027), and $275 million (2028) as PAG's capital-light MRO mix improves working capital dynamics. The company closed PAG with ~$900 million net debt, targets <2.5x net leverage by Q4 2026, and has a $500 million undrawn revolver, with pro forma diluted shares of approximately 30.5 million. The price target is $275 by YE 2028 (60% upside, ~20% IRR) applying 17.5x to $500 million 2028 EBITDA and modeling deleveraging to 1.2x, with bull case reaching $400 (120% upside, 38% IRR) at 22.5x on $550 million EBITDA if 22%+ margins materialize, versus downside of 15x on $400 million EBITDA yielding roughly flat returns. Comps TDG, LOAR, and HEI average 24x forward EBITDA with TDG at 17.7x, while the author argues a 15% organic grower with expanding margins and 100% aftermarket exposure warrants 20x+ as margins reach 20%+, noting the business should trade closer to 22-25x if organic growth sustains mid-teens. Key risks include multiple compression if aerospace aftermarket turns, PAG integration execution missing the synergy guide while organic growth slows simultaneously, delayed FCF inflection if inventory builds continue into 2027 (historically punishing the stock), and end-market softness in commercial aviation or B&GA flight hours, though management noted ~50% exposure is to resilient workhorse B&GA aircraft and April demand remained strong with no degradation in forward bookings.

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HAV Group, a Norwegian maritime technology company trading at under 6x FY26e EBIT with approximately 200 million NOK net cash and a 1.1 billion NOK order backlog, has initiated a strategic review via SB1 Markets—the same investment bank that sold comparable peer SEAM for roughly 2 billion NOK (approximately 36x FY24 EBIT or 19x FY22 EBIT) to Hanwha late last year. HAV operates through four segments: HAV Design (ship design), Norwegian Electric Systems (NES, electric propulsion and automation), Norwegian Greentech (ballast water treatment), and HAV Hydrogen (wound down in 2025 with technology transferred to HAV Design). NES, the core value driver approaching SEAM revenue levels with 10% FY25 EBIT margins, benefits from powerful regulatory tailwinds including the IMO's net-zero 2050 framework, ferry electrification growing at 15% CAGR through 2030, and only 2% of the world's 143,000 ships currently electrified, leaving approximately 140,000 ships requiring electrification. The Sævik family owns 41% of HAV through their holding company and remains underwater from the 18 NOK placement price, creating strong alignment to realize value through a potential NES sale. Assuming NES delivers 81 million NOK EBIT in FY26 based on current backlog and a 20x EBIT multiple (conservative versus SEAM's 19-36x range), HAV is worth approximately 50 NOK per share versus the current 13.50 NOK, without assigning value to HAV Design or Greentech. Alternative valuation assuming HAV captures 25% of Norway's 1,200 ships requiring electrification by 2050 at 100 million NOK average contract size and 8% blended EBIT margin implies under 4x EV/EBIT on a group level. Key risks include the strategic review yielding no transaction, project lumpiness with NES revenue historically swinging between -18% and +62% annually, competitive displacement by tier-1 incumbents like ABB, Kongsberg, Wärtsilä, and Siemens, and continued underperformance from HAV Design and Greentech segments dragging consolidated margins. Catalysts include a potential NES sale at a meaningful premium, continued operational momentum with positive EBITDA across all four quarters of 2025, international expansion evidenced by recent Tersan Shipyard contracts beyond the Norwegian market, and a potential HAV Design turnaround under new managing director Richard Schofield.

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MercadoLibre (MELI) is a holding update where the company has made three strategic decisions pressuring short-term margins but positioned to strengthen its long-term competitive moat. First, MELI cut Brazil free-shipping thresholds by approximately 75%, which compressed contribution margins by 50% year-over-year, though margin dollars are rising as the commerce network scales; historically, a prior 20% threshold cut led to 3.3x revenue growth over subsequent years, and the investor believes this aggressive move will attract more buyers and sellers while enabling higher-margin advertising and financial services sales. Second, the credit card book is growing 87% year-over-year with adequate provisioning despite upfront provision hits that depress current profitability, as MELI expands from serving underbanked customers to higher-quality middle-income consumers in building a broader Latin American bank. Third, cross-border trade links China and US suppliers to Latin American buyers through semi-managed and fully-managed solutions, leveraging existing logistics, payments, and infrastructure to handle pricing, shipping, marketing, and customer fulfillment. The investor views these initiatives as investing to strengthen the moat rather than defending current business, with multiple mutually reinforcing layers creating network effects, and believes the market is overly focused on near-term margin percentages rather than increasing margin dollars and the longer-term value creation from a more scaled, harder-to-replicate ecosystem.

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