10:59 AM EDT, 08/13/2026 (MT Newswires) -- Applied Aerospace & Defense ( AADX ) shows several positive fundamental dynamics coming out of Q2, despite the market's reaction to the company's first earnings as a public company, Morgan Stanley said in a Thursday note.

Building on this, Morgan Stanley said that the company is exposed to positive end-market growth dynamics, particularly in its C5ISR & Precision Strike segment, which is poised to benefit as defense primes convert missile framework agreements into contracts.

While the company's Q2 adjusted EBITDA margin was below expectations, Morgan Stanley said that it continues to see a path for margin expansion from operating leverage and Consolidated Boring-related integration and synergy realization.

Additionally, as investors flag the company's negative free cash flow in Q2, management has noted that cash in H2 will benefit from the unwind of certain investments in net working capital in the front half of the year and the resolution of factors such as IPO- and transaction-related cash expenses.

Morgan Stanley adjusted its price target to $24 from $23 and maintained its equal-weight rating.

Price: 18.78, Change: -0.33, Percent Change: -1.73