A Member of Pat McKeough’s Inner Circle recently asked for his advice on an industrial engineering company that designs and manufactures mission-critical fluid, power, heat transfer, vacuum, and advanced mixing technologies for defense, space, energy, and process customers.
The outlook is positive. However, Pat notes the stock has valuation risk. The shares are trading at a forward P/E of 51.3, which leaves little room for disappointment if orders slow or profit margins compress.
Graham Corp. (Symbol GHM on New York; www.grahamcorp.com) designs and manufactures fluid, power, and heat transfer systems for the defence, space, and energy industries.
The company was established in 1936 and listed on the U.S. public markets in 1968. Its headquarters is in Batavia, New York.
Known for its expertise in innovative power plant systems, like ejectors and surface condensers, Graham also has experience in designing sophisticated propulsion systems for torpedoes. those incorporate parts such as turbines, alternators, regulators, pumps and blowers.
The company organizes its business into three segments: Defense, Energy, and Space. Most of the company’s revenues (85%) are from U.S. customers, with the balance in East Asia and the Middle East.
Defense: This segment provides equipment used for fluid transfer, nuclear and non-nuclear propulsion, heat transfer, and advanced mixing solutions for long-term strategic platforms in outer space and undersea. It is the largest and fastest-growing business segment, accounting for 58% of revenue in 2025.
The Defence segment’s core products include condensers, heat exchangers, air turbine pumps, torpedo powerplants, and cooling pumps and controllers. Key markets include the U.S. Navy’s nuclear propulsion program, with its aircraft carriers and submarines. Other prominent customers include Boeing, General Dynamics, L3Harris, and Rolls-Royce.
Energy: This segment represents Graham’s legacy business and delivered 35% of the 2025 revenue. It serves a wide range of industrial markets. This unit’s Refining and petrochemical operations provide vacuum distillation systems and heat exchangers for petroleum refineries and chemical plants. Its Power generation business supplies equipment for traditional fossil fuel plants as well as renewable sectors like geothermal, solar, and nuclear. Energy’s customers include Air Liquide, DuPont, Aramco, and Fluor.
Space: This segment focuses on high-growth, highly complex engineering for the aerospace and commercial space sectors; in 2025, it contributed 7% of the company’s revenues. This unit produces rocket propulsion systems (turbopumps, cryogenic pumps), cooling systems, and life support components. Its customers include Boeing, Blue Origin, Sierra Space, and Nasa.
In October 2025, Graham Corporation acquired certain assets of Xdot Bearing Technologies, a specialist in patented foil bearing design. Xdot’s technology will be integrated into Graham’s wholly owned Barber-Nichols unit to expand high-speed rotating-machine capabilities for aerospace & defence. It also has applications for energy transition and industrial markets.
The deal brings Xdot’s annual sales of approximately $1 million, along with patented foil bearing designs. Xdot founder Dr. Erik Swanson will join Barber-Nichols’ leadership team after closing.
Meanwhile, in January 2026, the company acquired FlackTek for a purchase price of $35 million and an additional $25 million if targets are met over the four years beginning in fiscal 2027.
FlackTek adds advanced bladeless centrifugal mixing and material processing as a third core platform alongside Graham’s vacuum, heat transfer, and turbomachinery businesses. FlackTek has approximately $30 million in annualized revenue.
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Graham’s premium valuation is a risk factor despite revenue gains
Over the past few years, the company has seen its revenue rise steadily as the energy sector recovered and it shifted from traditional energy to the defence and space sectors.
In the three months ended June 30, 2026, Graham reported revenue of $71.3 million, up 28.6% from $55.5 million a year earlier. Revenue rose due to broad-based growth across all business segments, led by strong defense and space sales, along with a $6.6 million contribution from the FlackTek acquisition.
Excluding one-time items, earnings were $5.7 million, or $0.49 a share. This was up 16.2% from $4.9 million, or $0.45 a share, as stronger operating performance on the higher revenue base drove the increase.
However, Graham’s shares have jumped 82% over the last year, and the stock now trades at a high 51.3 times the forecast earnings of $1.79 a share. That adds risk.
Recommendation in Pat’s Inner Circle: Graham Corp. is okay to hold.
