A Look At Austal (ASX:ASB) Valuation After Accounting Error And EBIT Guidance Cut

Simply Wall St.

Feb 17

Austal (ASX:ASB) has cut its full year EBIT guidance after uncovering an accounting error in its US Navy contracts, where incentives were double counted, prompting fresh questions about controls and ...

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See our latest analysis for Austal. The accounting overstatement has come on the heels of a sharp 33.10% 1 month share price decline and a 14.16% year to date share price fall, even though the 1 year total shareholder return of 61.67% and 3 year total shareholder return of more than triple suggest longer term momentum has previously been strong. If this kind of volatility has you looking beyond defence contractors, it could be a time to scan the market for other ideas using our 2 top founder-led companies. With Austal now trading below analyst targets and flagged as materially below one valuation estimate, the key question for you is whether the recent sell off has created a genuine opportunity or whether the market is already pricing in future growth. AdvertisementMost Popular Narrative: 24.4% Undervalued Against Austal's last close of A$5.82, the most followed narrative points to a fair value of A$7.69, framing the recent sell off as a potential mismatch between price and expectations.  Increasing diversification into support services, sustainment, and new vessel classes (e.g., submarine modules, autonomous systems) is reducing earnings cyclicality and enhancing margin stability, with high margin services and support work (notably in Australia and the U.S.) providing profitable, lower risk recurring revenue streams.  Read the complete narrative. Curious what kind of revenue growth, margin profile, and future earnings multiple are built into that fair value line? The full narrative sets out the exact mix of contract wins, shipyard utilisation, and long term profitability assumptions that need to hold for A$7.69 to make sense. Result: Fair Value of A$7.69 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, this depends on continued government defense spending and smooth transitions away from legacy programs. Delays, cancellations, or margin pressure could quickly challenge that underpriced story. Find out about the key risks to this Austal narrative. Next Steps If this mix of caution and optimism feels familiar, it is a good time to look at the numbers yourself and move quickly to form your own view. You can start with our breakdown of 5 key rewards and 1 important warning sign. Looking for more investment ideas? If Austal's recent moves have sharpened your focus, treat this as your cue to refresh your watchlist and hunt for ideas that better fit your own criteria.  Target quality at a discount by scanning our list of 9 high quality undervalued stocks that combine fundamentals with prices some investors may have overlooked. Prioritise resilience by reviewing 5 resilient stocks with low risk scores that score well on stability, so sudden shocks are less likely to catch you off guard. Get ahead of the crowd by checking our screener containing 14 high quality undiscovered gems, where strong underlying numbers have yet to attract wide attention.   This article by Simply Wall St is general in nature. We provide commentary based on historical data\n    and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your\n    financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n    Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n    Simply Wall St has no position in any stocks mentioned.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. 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