Arxis (ARXS) could benefit from steady revenue growth, stronger pricing, more acquisitions, and high margins, but its current valuation and concerns about defense budget growth may limit near-term upside, RBC Capital Markets said in a note Monday.

The investment firm said Arxis' midterm revenue growth target of about 9% looks conservative, with volume, pricing, and new business expected to support sales, while the company may have room to raise prices because about 90% of its products are proprietary and only about 15% of revenue is covered by long-term agreements.

Acquisitions are the biggest possible upside driver, as Arxis has completed 32 deals since 2019 and expects to keep pursuing about five deals a year, RBC said, adding that Arcline's continued role in larger deals should help Arxis, while the company's recent IPO means investors will want to see a stronger public track record.

RBC started coverage of Arxis with a sector perform rating and a $39 price target, saying that the stock's current valuation already reflects much of the near-term opportunity, with better pricing or faster deal activity offering possible upside.

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