• VSE has reinvented itself as a pure-play aviation aftermarket specialist.
• The company delivers maintenance, repair and overhaul (MRO) and parts distribution services to commercial companies and defense contractors.
• Acquisitions and OEM partnerships — including deals with Kellstrom, Turbine Weld and Eaton — has expanded its market reach and accelerated growth.
• It’s gaining traction as an under-the-radar beneficiary of the defense sector’s new supercycle with record Q1 earnings, expanding margins and a 50% year-to-date rally.

With the Middle East at the center of escalating global tensions, the defense industry is undergoing an undeniable supercycle — and American aerospace and logistics players are feeling the tailwinds. Just days ago, the US launched a military strike against Iran’s nuclear facilities in Operation Midnight Hammer, and Iran responded with missile attacks on US bases in Qatar, escalating the conflict and raising fear of a broader regional war. With Iran’s proxies in Yemen and elsewhere already active, global defense budgets are surging as governments prepare for prolonged instability.

We recently covered three standout defense-oriented names — Elbit Systems (ESLT), Kratos Defense (KTOS) and L3Harris Technologies (LHX) — all of which have outperformed in 2025 as investors reposition in response to heightened geopolitical risk and a wave of military procurement. Today, we turn our attention to another emerging player: VSE (VSEC). While not a household name, VSE has transformed itself into a high-performing aerospace aftermarket and mission-critical maintenance, repair and overhaul (MRO) specialist. Its stock is up nearly 50% year-to-date.

Unlike traditional defense contractors that focus on weapons systems or battlefield tech, VSE operates deeper in the supply chain, supplying aircraft parts and repair services to commercial and defense customers. The company contributes to operational readiness at a time when aviation infrastructure is under renewed pressure. As military fleets expand and commercial operators reallocate capacity in response to shifting threats, demand for MRO and logistics support has been rising. 

Today, we take a closer look at what’s fueling VSE’s breakout performance in 2025 and consider whether the stock still has altitude left to climb.

From diversified contractor to aviation pure play

VSE, which has headquarters in northern Virginia and operational hubs in Florida and South Carolina, is emerging as a vital player in the $100 billion global aviation aftermarket. Once known for its sprawl across defense logistics, federal support services and fleet maintenance, the company has undergone a bold strategic overhaul, narrowing its focus to where the opportunity is greatest: Aviation maintenance, repair and overhaul (MRO), along with high-value parts distribution. The shift reflects broader industry dynamics, including the aging of global aircraft fleets, growing demand for outsourced MRO services and rising pressure on OEMs to support aftermarket operations more efficiently.

VSE isn’t simply pivoting. It’s undergoing a full-scale reinvention. Over the past two years, the company has methodically exited non-core segments, revamped its balance sheet and funneled resources into higher-growth, higher-margin aviation services. The transformation came into sharp focus in April with the sale of its underperforming Fleet division, a $230 million divestiture that shed low-return operations and unlocked capital for strategic reinvestment. While the price tag drew mixed reviews, the message was unmistakable: VSE was no longer a sprawling government contractor. It had reinvented itself as a focused, vertically integrated aerospace aftermarket platform with national scale and global reach.

Aviation, once just a division at VSE, is now the whole story. VSE supports commercial, business and general aviation operators with a growing suite of services — from complex engine repairs to nose-to-tail parts supply. Strategic acquisitions have powered the transition. In late 2024, the company acquired Kellstrom Aerospace, a top-tier engine component distributor, in a $200 million deal that brought strong margins and immediate scale. In May, it followed up with the acquisition of Turbine Weld Industries, expanding its repair capabilities into high-complexity components for Pratt & Whitney Canada. Meanwhile, a newly signed partnership with Eaton positions VSE as its exclusive authorized service center in the Americas, deepening its OEM relationships and reinforcing the stickiness of its products and services. 

In a macro environment marked by inflation, tariffs and corporate uncertainty, VSE has taken the opposite approach of many of its peers. While others have played defense, VSE has stayed on the offensive, streamlining its portfolio, accelerating dealmaking and embedding itself deeper into the supply chains of large manufacturers and aviation operators. Investors have responded in kind. Shares are up nearly 50% year-to-date, reflecting a growing belief that it’s more than just a tactical repositioning. It’s structural evolution with staying power.

Strategy in motion, financial results in hand

VSE’s strategic pivot to a focused aviation business isn’t just a narrative shift — it’s showing up in the numbers. In Q1, the company delivered record revenue of $256 million, up nearly 60% year-over-year. That surge reflects more than just a healthy end market. It signals strong execution across both the company’s distribution and MRO operations, with momentum coming from organic growth, expanded product lines and contributions from recent acquisitions.

Profitability climbed sharply alongside revenue, underscoring the strength of VSE’s transformation. In Q1, adjusted EBITDA ( earnings before interest, taxes, depreciation and Aamortization) rose 60% to $40 million, while adjusted earnings per share (EPS) jumped 73% to $0.78 — both company records. Aviation distribution revenue grew 49%, and aviation repair revenue surged 76%, driven by strong demand and recent acquisitions. Adjusted EBITDA margins for the aviation segment came in at 17%, slightly lower than last year because of the short-term costs associated with integrating the newly acquired businesses. Management called the margin dip “expected and temporary,” with synergies already taking shape and set to accelerate in the second half of 2025.

VSE isn’t just delivering results. It’s projecting more to come. The company is guiding for full-year aviation revenue to climb 35%–40%, powered by a mix of organic tailwinds and recent acquisitions. Margins are expected to remain strong in the 16%–17% range, supported by continuing improvements in efficiency and deepening OEM partnerships. That includes the recently signed Eaton agreement, a five-year exclusive service contract covering hydraulic components in the Americas. It’s the kind of recurring, high-volume work that underscores VSE’s growing role as a go-to player in the aviation aftermarket.

Taken together, VSE’s first-quarter results don’t just validate the company’s transformation. They set the stage for a new era of scale and profitability. The pivot may not be fully complete, but the foundation is firmly in place. After years spent straddling diverse markets, the company now looks sharply focused, operationally leaner and better equipped to deliver steady, long-term value to shareholders.

Premium valuation, justified potential

At first glance, VSE’s valuation doesn’t scream bargain. The company trades at roughly 58 times trailing GAAP (generally accepted accounting principles) earnings — well above the industrial sector median of 23. Its price-to-sales ratio of 2.2 also sits higher than the peer average of 1.5, and its price-to-book multiple of 2.9 edges above the 2.8 sector norm. On the surface, this might suggest an overheated stock. But dig a little deeper, and the story becomes more nuanced and potentially more compelling.

VSE’s earnings multiple reflects more than just momentum. It’s pricing in transformation. The business has exited a low-margin segment and added higher-return aviation assets. It has gained the operating leverage and revenue velocity that can drive rapid bottom-line expansion. Case in point: Adjusted EPS grew over 70% year-over-year in Q1 2025, on 58% growth in revenue. If that trajectory holds — or even moderates slightly — valuation metrics could compress meaningfully in the quarters ahead. As such, today’s premium may simply be the price of admission to a business that’s growing into a new multiple.

And that’s precisely what Wall Street seems to be betting on. All seven analysts covering VSE rate the stock a “buy” or “overweight,” with an average price target of $150 per share, about 7% above the current share price of $140. The underlying rationale is clear: The company’s vertically integrated model, sticky OEM partnerships and recurring revenue from mission-critical repair and distribution work give the company a long runway for profitable growth. It’s not just participating in the aerospace aftermarket. It’s positioning itself as a core enabler in the industry. 

To justify the current valuation, VSE doesn’t need to radically outperform — it simply needs to execute. The company has already reaffirmed full-year guidance, with expected aviation revenue growth of 35%–40% and EBITDA margins in the 16%–17% range. That kind of consistency, coupled with improving free cash flow and a cleaned-up balance sheet, could recalibrate investor expectations. If management continues to hit its marks, today’s price-to-earnings ratio could shrink quickly without the stock needing to move at all.

Investment takeaways

VSE isn’t navigating a turnaround — it’s reinventing itself. With the Fleet divestiture complete, a slate of high-value aviation acquisitions integrated or underway and OEM relationships deepening, the company has shed its legacy distractions and emerged as a more focused, higher-margin business in a growing market. Thanks to its reinvention, the company’s business model looks simpler, stronger and more scalable.

Financial momentum is beginning to match the strategic story. Record Q1 revenue and earnings growth — driven by broad-based strength in both distribution and MRO — demonstrate VSE’s strategic pivot is delivering. Profitability is expanding, while leverage is coming down and cash flow is poised to inflect higher in the second half of the year. While valuation metrics appear rich on a trailing basis, they look far more reasonable through a forward lens, particularly if the company continues to execute at this pace. 

We rate VSE a “buy,” based on its clear execution, attractive market positioning and strengthening financial profile. That said, given elevated valuation multiples, and the potential for near-term market volatility, we view dollar cost averaging (DCA) as a prudent way to build exposure. For investors seeking access to the long-term growth of the defense/aviation sectors — without chasing hype — the company offers a compelling story. 

Andrew Prochnow, Luckbox analyst-at-large, has traded the global financial markets for more than 15 years, including 10 years as a professional options trader.

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