KEYW Is A Pure Play On Cyber And Intelligence

RBC Capital’s Matthew McConnell believes KEYW Holding Corp. KEYW has “share gain opportunities in untapped intelligence agencies, strong early returns from stepped-up business development investments, and margin improvement opportunity on incremental revenues.”

The analyst initiated coverage of the company with an Outperform rating and price target of $12.

Defense Pure Play

McConnell mentioned that following the elimination of its exposure to the commercial cybersecurity market in May 2016, KEYW Holding is now a pure play in defense cybersecurity and intelligence, surveillance and reconnaissance (ISR).

The Department of Defense has requested $6.8 million for cyberspace operations, representing a 14 percent year on year increase.

KEYW Holding generates its annual revenues of $291 million from just two of the 17 U.S. intelligence agencies, and the analyst stated that the company has accelerated investments to capitalize on this growth opportunity.

Related Link: KeyW Announces Pricing of Public Offering of Common Stock

Growth Opportunities

“KeyW has enhanced its proactive business development efforts over the past year with a new team that is showing early signs of success. We see a progression of building a greater pipeline, submitting better bids, and organic revenue acceleration,” McConnell noted.

The analyst expects the company’s organic growth to accelerate from -2.3 percent in 2016 to 6.0 percent in 2017 and 7.5 percent in 2018, with room for further improvement beyond that.

In addition, McConnell believes that a large part of KeyW Holding’s cost structure is set up to accommodate annual revenues of $400 million–$500 million, as compared to the current $291 million, implying robust incremental margins as revenue accelerates.

At last check, shares of KEYW were up 2.33 percent at $10.09.