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Engility's Reward Is Worth The Risk, Stifel Says In Bullish Initiation

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Engility's Reward Is Worth The Risk, Stifel Says In Bullish Initiation

The rewards associated with owning shares of government contractor Engility Holdings Inc (NYSE: EGL) are commensurate with the risk, according to Stifel. 

The Analyst

Analyst Joseph DeNardi initiated coverage of the shares of Engility with a Buy rating and $38 price target.

The Thesis

Investing in shares of Engility is risky due to the company's higher-than-average leverage and disappointing revenue growth since its TASC acquisition in 2015, DeNardi said in the initiation note. 

The analyst said he sees many positives in the stock. Engility has a decent execution history, with EBITDA margins in the mid-9-percent range as a result of the TASC buy and its higher-margin intel and space work.

Engility has an experienced management team and has won the confidence of private equity investors KKR and General Atlantic, DeNardi said. 

Despite the higher-than-average leverage and challenging growth prospects, the analyst views Engility as a solid value play.

"Given its current price of around $30, we believe the market still discounts the company's long-term growth opportunities relative to the two-year budget agreement and its ability to delever its balance sheet." 

The concerns about the company's ability to win recompete contracts are overblown, according to Stifel. 

" ... Expect shares to re-rate later in the [the second half of 2018] in conjunction with a broader pickup in awards," DeNardi said. 

The Price Action

Shares of Engility have lost over half their value year-to-date. The stock was up 2.88 percent at the time of publication Friday. 

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Latest Ratings for EGL

DateFirmActionFromTo
Sep 2018MaintainsBuyBuy
Sep 2018DowngradesOutperformMarket Perform
Aug 2018DowngradesBuyHold

View More Analyst Ratings for EGL
View the Latest Analyst Ratings

Posted-In: Joseph DeNardi StifelAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

 

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StockFirmActionPT
ABBBarclaysInitiates Coverage On
DPLOWilliam BlairUpgrades
SUPVItau BBADowngrades
GGALItau BBADowngrades
BMAItau BBADowngrades
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