Tailwinds Are Brewing For ManTech; Loop Upgrades To Buy

The U.S. government may be in disarray, but its opportunities for IT companies are strong, helping to earn Mantech International Corp MANT an upgrade from Loop Capital Markets analyst Joseph Vafi.

ManTech shares were upgraded from Hold to Buy with a price target increase from $41 to $44.

The analyst sees several catalysts ahead, both specific to the company and secular — most importantly, the potential to leverage its balance sheet and pick up new government contracts.

Deploying The Balance Sheet

“We believe ManTech will deploy its unlevered balance sheet to drive material inorganic growth,” said Vafi.

ManTech has zero debt and $90 million in cash. It also has a comfortable leverage of 3–3.5 times EBITDA.

Vafi notes that the company could likely handle an acquisition with a purchase price up to $450 million. “Such a purchase price would drive a similar increase to annualized revenue.”

The unlevered balance sheet could also make ManTech an attractive option for private equity firms in a go-private deal.

With a 30 percent premium and reasonable growth and leverage assumptions, the company’s internal rate of return could be over 18 percent in five years.

Government Contracts

ManTech’s business is oriented around providing information technology solutions for national security programs.

A rise in large task orders from the government over the past year has Vafi convinced that the 2017 omnibus spending bill will drive growth sector-wide.

Three orders of note from the past few months were two totaling $700 million to Science Applications International Corp SAIC and a $229 million contract to ManTech.

“We expect to see accelerating award activity through [the third quarter],” said Vafi.

At time of publication, shares of ManTech were up 3.32 percent at $40.72.

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