Voss Capital: Amentum ($AMTM) Investment Case
Introduction In their Q4 2024 investor letter, Voss Capital presents Amentum ($AMTM) as a compelling investment opportunity, highlighting it as an under-covered government services leader trading at a significant discount to its peers. Voss Capital, which returned +9.6% and +9.5% to investors net of fees in Q4 2024 for their Value Fund and Value Offshore Fund respectively, identifies Amentum as an attractive opportunity due to temporary spin-off dynamics and near-term selling pressure. The letter emphasizes Amentum’s strong fundamentals, substantial backlog, and clear deleveraging path as key factors supporting their investment thesis.
Investment Highlight: Amentum ($AMTM)
Business Overview
- Newly formed government services provider
- Created via reverse Morris trust (RMT) merger between Amentum and Jacobs’ CMS division in Q3 2024
- Second largest public government services provider by revenue
- Operates across five key markets: Defense (46%), Civil (17%), Environmental (15%), Space (11%), and Intelligence (11%)
Market Position
- $45 billion backlog (3.2x annual revenue)
- No single contract accounts for more than 4% of total revenue
- Scale provides competitive advantage in bidding for larger contracts
- 65% of revenues earned through cost-plus contracts, providing protection in high inflation environments
Performance Analysis
- Financial Position:
- Strong cash generation with over $500M of annual FCF expected
- Current net leverage ratio of 4.0x
- Trading at <10x FCF
- Management focused on reducing leverage to <3x by the end of FY26
- Growth Drivers:
- Increasing geopolitical tensions
- Growing cybersecurity needs
- Expanding space exploration initiatives
- Government modernization projects
Market Dynamics and Opportunities
- Trading at an unwarranted 30%+ discount to peers due to spin-off dynamics
- Stock has experienced volatility despite strong fundamentals
- Backlog coverage and leverage reduction should drive multiple expansion
- Integration of operations and execution on synergies from Jacobs merger likely to accelerate revenue growth
Valuation and Capital Allocation
- Voss values the company at a conservative 10.5x 2026E EBITDA
- Multiple expected to increase as the company delevers through 2026
- 80% upside potential to $34 per share based on Voss’s analysis
Catalysts
- Jacobs plans to sell its remaining 8% stake by end of June 2025
- Private equity holders expected to reduce their stakes
- Deleveraging progress toward <3x net leverage by FY26
- Synergy realization from the Jacobs merger integration
Risks
- Continued selling pressure until Jacobs and PE holders exit positions
- Integration challenges with the recent merger
- Government contracting sector volatility
- Potential impacts from changing political administrations
Voss Capital views Amentum as an attractive special situation with substantial upside potential as temporary technical pressures subside and the company executes its post-merger strategy, aligning with their focus on identifying idiosyncratic, value-oriented investment opportunities that can generate uncorrelated alpha amid market uncertainty.
