VSE Corp. – Value Analysis (NASDAQ:VSEC) : December 19, 2017

Capitalcube gives VSE Corp. a score of 41.

Our analysis is based on comparing VSE Corp. with the following peers – Kratos Defense & Security Solutions, Inc., Engility Holdings, Inc., Northrop Grumman Corporation, Raytheon Company, Lockheed Martin Corporation, KEYW Holding Corporation, General Dynamics Corporation, Orbital ATK, Inc., Aerojet Rocketdyne Holdings, Inc. and Teledyne Technologies Incorporated (KTOS-US, EGL-US, NOC-US, RTN-US, LMT-US, KEYW-US, GD-US, OA-US, AJRD-US and TDY-US).

Investment Outlook

VSE Corp. has a fundamental score of 41 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • It trades at a lower Price/Book multiple (1.96) than its peer median (3.70).
  • We classify VSEC-US as Challenged because of its below median returns and the market’s relatively low growth expectations.
  • VSEC-US has relatively low net profit margins while its asset efficiency is relatively high.
  • Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
  • VSEC-US‘s return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • While VSEC-US‘s revenue growth in recent years has been above the peer median, the stock’s P/E ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company’s capital investment program and to-date returns suggest that the company is likely making big bets on the future.
  • VSEC-US has additional debt capacity.

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Leverage & Liquidity

VSEC-US has additional debt capacity.

  • With debt at a reasonable 24.67% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 22.85%), and a well-cushioned interest coverage level of 5.70x, VSEC-US has the capacity to borrow some more.
  • All 10 peers for the company have an outstanding debt balance.

VSEC-US has moved to a relatively high liquidity from an Some Capacity profile at the recent year-end.

  • VSEC-US‘s interest coverage is upward trending but is still within one standard deviation below its five-year average interest coverage of 7.15x.
  • Compared to 2016, interest coverage has remained relatively stable for both the company (5.70x) and the peer median (7.56x).
  • VSEC-US‘s debt-EV is less than (but within one standard deviation of) its five-year average debt-EV of 33.70%.
  • Though its debt-EV decreased to 24.67% from 36.09% (in 2016), its peer median remained relatively stable during this period at 22.85%.
  • Relative to peers, debt-EV fell 11.42 percentage points.

Access the detailed analysis for VSE Corp.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Kratos Defense & Security Solutions, Inc. 47.07 2.86 0.44 3.9
Engility Holdings, Inc. 44.41 1.34 1.76 12.08
Northrop Grumman Corporation 15.6 1.21 11.17 48.92
Raytheon Company 8.85 1.66 15.4 58.68
Lockheed Martin Corporation 14.29 1.32 8.15 42.58
KEYW Holding Corporation 23.09 1.48 -0.56 0.28
General Dynamics Corporation 7.23 1.37 43.03 88.78
Orbital ATK, Inc. 22.85 1.87 7.56 39.19
Aerojet Rocketdyne Holdings, Inc. 44.37 1.66 4.35 24.27
Teledyne Technologies Incorporated 12.77 1.98 11.72 26.51
VSE Corporation 24.67 1.91 5.7 27.12
Peer Median 22.85 1.66 7.56 27.12
Best In Class 7.23 2.86 43.03 88.78

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Company Profile

VSE Corp. engages in the provision of engineering and technical support services. It operates through the following segments: Supply Chain Management; Aviation; Federal Services; and IT, Energy and Management Consulting. The Supply Chain Management segment distributes vehicle parts and accessories. The Aviation segment offers maintenance, repair, and operations services, supply chain solutions, and engine parts and equipment. The Federal Services segment includes engineering, industrial, logistics, and legacy equipment sustainment services. The IT, Energy and Management Consulting segment provides technical and advisory services to government agencies. The company was founded on January 22, 1959 and is headquartered in Alexandria, VA.


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