At time of writing, shares of Aerojet Rocketdyne Holdings were slumping 6.66 percent to $32.11.

As such, the firm downgraded shares of Aerojet Rocketdyne from Buy to Hold but upped its price target from $30 to $35.

Analysts Greg Konrad and Sheila Kahyaoglu view 2018 as a transition year. The analysts noted that the market has reset expectations for 2018, given the 13 percent revenue growth in the first-half.

That said, the analysts believe 2018 presents some challenges, with the loss of a key program and more modest revenues for the Space Launch Systems program. The analysts estimate that the RS-25 program for the SLS could contribute $260 million to 2017 revenues, although declining as the launch vehicle approaches first launch in 2019.

Therefore, the firm said its revenue growth estimate of 3.3 percent is three points below expectations for the fiscal year 2018 and 2019.

The firm also expects a 20-basis-point drop in margins in 2018 compared to Street forecasts for a 20-basis-point expansion.

"Expectations are that a portion of the cost cuts from the Competitive Improvement Program (CIP) will drop to the bottom line, but we believe the benefit is more about winning new business. Recent wins point to the competitiveness of the offering," the firm said.

On valuation, the firm noted that the proposed acquisition of Orbital ATK Inc (NYSE:OA) by Northrop Grumman Corporation (NYSE:NOC) has reset valuations for the group per se and also for Aerojet, being a direct peer.

The firm said the acquisition reflected the attractiveness of the missile defense and space propulsion markets.

Though the firm believes at a similar take-out multiple, Aerojet may be worth $38, it thinks a discount to the group is appropriate, given the company has one of the lowest free cash flow yield among peers.