2 min read

$AMTN

Amentum Holdings

What they Do?

  • Engineering and technology solutions for US government.
  • Spin off from AECOM.
  • Acquired Jacobs Solutions' Critical Mission Solutions and Cyber & Intelligence units in 2024.
  • 5 divisions:
    • Energy & Environment solutions (Nuclear decommissioning, clinical resilience and renewable integration)
      • E&E division will be a target of funding loss during current administration.
    • Defense Readiness
    • Intelligence and Cybersecurity
    • Space Systems
      • Have heard Elon complain about orbital debris mitigation in the past; could also be a target.
    • Citizen Services (Healthcare IT and disaster recovery coordination)

Financials:

  • MC 4.86B, EV 9.82B, 550M cash (+2.4B in receivables), 4.8 B debt
    • Current ratio ok > 1.5 given the receivables.
  • Revenue trending up >20% YoY. But was single digit growth for 2 years.
  • Operating income is positive 305M TTM, but interest expenses are quite large -414M TTM making net income negative. Guiding to 500M FCF in 2025.
    • Plan to deleverage to 3.0x (Currently 4.0x)
  • Operating cash flow looks good 240M TTM, but still expensive on 9.8B EV.
  • CapEx light. 100% service, not product based.
  • Growth estimate: ~8-12% FCF if annualizing. Higher growth than peers.
  • Greenblatt screen: 84% ROC, 3.97% earnings yield.
  • P/E 9.5, EV/FCF 40. Using guidance of 500M FCF 2025.
  • Shares outstanding: 59% dilution over last 1 year.
    • All stock merger to get Jacobs CMS and C&I divisions.
  • No dividend.
  • Management:
    • Steven Demetriou (Exec Chair) holds 620 million shares, ~12 M. Large purchase recently of 2 M in Feb of 2025.

IR Presentation:

  • Backlog $45 billion. Book to Bill ratio 1.1x.
  • UAV development likely is a big area of need in the future.
  • Suspected cost synergies of 60M in next 18 months.
  • Revenue synergies long term.
  • Paying down debt to 3.0x is first goal.

Social media:

Thesis:

  • Downside: Significant uncertainty surrounding DOGE cuts, 80% of revenue from government. Possible it continues selling off 6 more months (for no reason other than people don't want to hold spin off shares). >4 billion of debt. Margins are not great, could also be a positive if improved.
  • Upside: Growing FCF around 10%, trading at under PE of 10 is cheap. Ideal Greenblatt spinoff investment with chance to catch after indiscriminate selling stops from spin off; typically year 2 better. Re: DOGE: Critical missions per CEO, ie nuclear cleanup needs. Can pay down debt over 18 months, and rerate to PE of ~11, which would be more industry average. Industry best backlog.

Conclusion: Higher probability of upside than downside, but anything possible with DOGE. 50% chance to upside, 25% continued sell off, and 25% of government cuts and stock down significant. Limited magnitude of upside not worth it. Review for potential purchase in year 2 as forced selling has stopped after spin off, approximately 09/2025. This gives more time for clarity on DOGE cuts also. If no significant loss of contracts $26 would be my price target. Upside isn't worth risk of contract cuts currently but worth monitoring for cheaper entry, maybe at $15.

Paul Weaver

Charlotte, NC