Undervalued Vectrus Inc, FCF/Price Yield 15%, Solid Prospective Pipeline and Backlog

Johnny HopkinsStocks, VECLeave a Comment

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One of the cheapest stocks in our All Investable – Stock Screener is Vectrus Inc (NYSE:VEC).

With a market cap of $240 million, this micro-cap remains undiscovered by a lot of investors and too small for investment by large institutions.

Vectrus provides infrastructure asset management, information technology and network communication services, and logistics and supply chain management services to the U.S. government worldwide. Its main business is providing base operations, logistics, information and communications services to the military.

A quick look at the company’s share price (below) over the past twelve months shows that the price is up 12% to $22.36 from $20.53 in March 2016. That is 36% off its 52 week high of $34.98.

(Source, Google Finance)

There’s no question that Vectrus has had a couple of major setbacks in 2016 with the loss of its K-BOSSS contract, estimated to be worth $438 million, and the loss of its APS-5 contract, which contributed approximately $181 million.

However, Vectrus has won a number of new contracts in 2016 and is set to begin full contract operations later in the year on the $411 million seven year Thule Base Maintenance Contract. The company is also waiting for the pending award on the Maxwell Base re-compete, and has a prospective pipeline of $1.5 billion in bids submitted pending award, and plans to submit a proposal of almost $6 billion of identified opportunities.

When you add this to the company’s total backlog of $2.4 billion and a funded backlog of $665 million, Vectrus is well positioned to replace lost revenues from its K-BOSSS and APS-5 contracts.

The company is operationally efficient, has a strong balance sheet and loads of free cash flow. Vectrus is well run, showing smart capital allocation of its free cash to pay down debt.

In terms of Vectrus’ valuation. The company is currently trading on a FCF/Price Yield of 15% (ttm), a FCF/EV Yield of 13% (ttm) and an Acquirer’s Multiple of 6.11, or 6.11 times Operating Earnings*. Add to this the company’s P/E of 9.68, a P/B of 2 and a P/S of 0.21 and Vectrus remains clearly in undervalued territory.

You can read our full stock analysis on Vectrus at ValueWalk here.

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