Ducommun (DCO) is "well positioned" to benefit from rising demand for missiles and munitions, but much of that upside is already reflected in consensus estimates and the stock's valuation, while potential "budget pressure" on its legacy defense business could limit further upside, RBC Capital Markets said in a report Thursday.

The firm expects the company to continue delivering "robust" organic growth across its defense and commercial aerospace businesses, with adjusted earnings before interest, taxes, depreciation, and amortization margins exceeding 20% expected to be outlined at its September investor day, the report said.

However, the analysts noted that increased US defense spending on priorities such as hypersonics, missiles, space, artificial intelligence and unmanned systems could pressure Ducommun's "legacy defense programs." Potential mergers and acquisitions remain a "potential catalyst," although "competition for high quality assets" is expected to limit opportunities, according to the report.

RBC downgraded Ducommun to sector perform from outperform, while raising its price target to $175 from $155.

Price: 170.14, Change: -2.50, Percent Change: -1.45