Rating Update: Stock Rating C-Neutral (3/20/20)-ManTech International Corp (MANT).

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BUSINESS

ManTech International Corporation provides technologies and solutions for mission-critical national security programs worldwide. It offers cyber solutions and services, including security operations, threat intelligence, incident response and forensics, boundary defense, security systems engineering, infrastructure security, and computer forensics and exploitation.
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INVESTMENT RATING

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MANT’s future returns on capital are forecasted to be in line with the cost of capital. Accordingly, the company is expected to continue to be Value Creation neutral.

ManTech has a current Value Trend Rating of C (Neutral).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. ManTech has a poor Appreciation Score of 20 but a very high Power Rating of 89, and the Neutral Value Trend Rating results.

ManTech’s stock is selling above targeted value. The current stock price of $57.84 compares to targeted value 12 months forward of $55.
This low appreciation potential results in an appreciation score of 20 (80% of the universe has greater appreciation potential.)
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ManTech has a Power Rating of 89. (MANT’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 11% of companies in the universe.)
Factors contributing to this very high Power Rating include: the recent trend in MANT’s earnings estimates has been extremely favorable; and recent price action has been extremely favorable. An offsetting factor is is in a slightly weakened position current.

INVESTMENT PROFILE

ManTech’s financial strength is average. Financial strength rating is 53.
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Relative to the S&P 500 Composite, ManTech International Corp has moderate Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that MANT is normal risk. Relative weaknesses include: low forecasted profitability, low historical profitability, and low financial strength. ManTech’s valuation is moderate: moderate dividend yield, high P/E ratio, and moderate price/book ratio. MANT has unusually low market capitalization.

CURRENT SIGNALS

ManTech’s current operations are eroding. Return on equity is falling, reflecting: and falling tax keep rate.

ManTech’s current technical position is mixed. The stock price is in a 0.9 month down move. The stock has declined 25.6% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average.

ALERTS

ManTech International Corp (NASDAQ: MANT) suffers from meaningful negative changes in investment behavior: negative upside/downside volume developed.
ManTech International Corp (NASDAQ: MANT) has recently enjoyed minimal positive changes in fundamentals: significant quarterly earnings acceleration occurred.
The stock is currently rated C.
ManTech International Corp (NASDAQ: MANT) stock suffered a major decline of -18.7% on 3/20/20. The shares closed at $7.75. Moreover, trading volume in this decline was unusually high at 155% of normal. The stock has been exceptionally strong relative to the market over the last nine months but has declined -9.0% during the last week.

CASH FLOW

In 2019, ManTech generated a very significant increase in cash of +$3.6 million (+67%). Sources of cash were much larger than uses. Cash generated from 2019 EBITDA totalled +$192.5 million. Non-operating uses consumed -$0.8 million (-0% of EBITDA). Cash taxes contributed +$0.6 million (+0% of EBITDA). Re-investment in the business amounted to -$323.3 million (-168% of EBITDA). On a net basis, debt investors supplied +$159.0 million (+83% of EBITDA) while equity investors withdrew -$24.4 million (-13% of EBITDA).
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ManTech’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Mantech International Corp Peer Group. In most years, ManTech was in the second quartile and third quartile. Currently, ManTech is at median at -0% of EBITDA (-$0.8 million).

ManTech’s Cash Taxes, %EBITDA enjoyed a strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Mantech International Corp Peer Group. In most years, ManTech was in the top quartile and second quartile. Currently, ManTech is upper quartile at +0% of EBITDA (+$0.6 million).

ManTech’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Mantech International Corp Peer Group. In most years, ManTech was in the lower quartile and top quartile. Currently, ManTech is lower quartile at -168% of EBITDA (-$323.3 million).

ManTech’s Debt Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Mantech International Corp Peer Group. In most years, ManTech was in the second quartile and top quartile. Currently, ManTech is upper quartile at +83% of EBITDA (+$159.0 million).

ManTech’s Equity Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Mantech International Corp Peer Group. In most years, ManTech was in the second quartile. Currently, ManTech is slightly above median at -13% of EBITDA (-$24.4 million).

ManTech’s Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Mantech International Corp Peer Group. (Since 2017 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, ManTech was in the top quartile and second quartile. Currently, ManTech is at the upper quartile at +2% of EBITDA (+$3.6 million).
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ManTech’s Cash, %Revenue has experienced a small downtrend over the period. This downtrend was accompanied by stability for the Mantech International Corp Peer Group. In most years, ManTech was in the lower quartile and third quartile. Currently, ManTech is lower quartile at +0%.

PROFITABILITY

MANT’s return on equity reached a new post-2010 high in 2018.
A major analytical focus for MANT is a small negative trend in pretax operating return a significantly offset by very strong positive trend in non-operating factors.
The productivity of MANT’s assets declined over the full period 2010-2019: asset turnover has suffered a very strong overall downtrend.
Partially offsetting this trend, however, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2013 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
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MANT’s return on equity is slightly below median (7.6%) for the four quarters ended December, 2019.
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Operating performance (pretax return on assets) is substantially above median (6.5%) reflecting asset turnover that is substantially above median (1.05X) and at median pretax margin (6.1%).
Tax “keep” rate (income tax management) is at median (83.7%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is lower quartile (1.41X).

GROWTH RATES

There are no significant differences between ManTech International’s longer term growth and growth in recent years.
ManTech International’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.

Annual revenue growth has been -4.0% per year. (More recently it has been 7.3%.)

Total asset growth has been 0.9% per year. (More recently it has been 5.4%.)

Annual E.P.S. growth has been -1.3% per year.

Equity growth has been 2.9% per year.

ManTech International’s consensus growth rate forecast (average of Wall Street analysts) is 8.0% — substantially above the average of the historical growth measures.
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Relative to the Mantech International Corp Peer Group, ManTech’s historical growth measures are erratic. E.P.S. growth (-1.3%) has been substantially below median. Equity growth (2.9%) has been at the lower quartile. Revenue growth (-4.0%) has been lower quartile. Total asset growth (0.9%) has been lower quartile.

Consensus growth forecast (8.0%) is at median.
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PRICE HISTORY

Over the full time period, ManTech International’s stock price performance has been variable and below market. Between May, 2009 and March, 2020, ManTech International’s stock price rose +51%; relative to the market, this was a -40% loss. Significant price move during the period: 1) May, 2011 – May, 2012: -52%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of 40.1% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through February, 2020 of 40.1% is upper quartile relative to ManTech International Corp Peer Group.

Current 5-year total return performance of 20.2% is upper quartile relative to the S&P 500 Composite.
Through February, 2020, with upper quartile current 5-year total return of 20.2% relative to S&P 500 Composite, ManTech’s total return performance is upper quartile relative to ManTech International Corp Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, MANT’s overall valuation is low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is slightly below median. Price/earnings ratio is slightly below median. Ratio of enterprise value/assets is below median. Price/equity ratio is at the lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.

Relative to ManTech International Corp Peer Group, MANT’s overall valuation is high. The highest factor, the ratio of enterprise value/assets, is above median. Ratio of enterprise value/earnings before interest and taxes is above median. Price/equity ratio is slightly above median. Ratio of enterprise value/revenue is slightly above median. The lowest factor, the price/earnings ratio, is at median.
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ManTech has a minor value gap compared to the median. For MANT to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 0.77X to 0.75X. If MANT’s ratio of enterprise value/revenue were to fall to 0.75X, its stock price would be lower by $-2 to $56.
For MANT to achieve upper quartile valuation relative to the ManTech International Corp Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.77X to 1.10X. If MANT’s ratio of enterprise value/revenue were to rise to 1.10X, its stock price would increase by $27 from the current level of $58.

VALUE TARGETS

MANT’s future returns on capital are forecasted to be in line with the cost of capital. Accordingly, the company is expected to continue to be Value Creation neutral.
ManTech International’s current Price Target of $54 represents a -7% change from the current price of $57.84.
This low appreciation potential results in an appreciation score of 20 (80% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 20, the high Power Rating of 89 results in an Value Trend Rating of C.
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ManTech International’s current Price Target is $54 (+12% from the 2019 Target of $48 but -7% from the 03/20/20 price of $57.84). This slight rise in the Target is the result of a +18% increase in the equity base and a -5% decrease in the price/equity multiple. The forecasted increase in return on equity has a large positive impact on the price/equity multiple and the forecasted increase in growth has a slight positive impact as well. More than offsetting these Drivers, the forecasted increase in cost of equity has a very large negative impact.
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PTR’s return on equity forecast is 7.4% — in line with our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2011 and 2019. The current forecast is below the 2011 peak of 11%.

PTR’s growth forecast is 9.0% — substantially above our recent forecasts. Forecasted growth suffered a dramatic, variable decline between 2011 and 2019. The current forecast is significantly above the 2016 low of -4%.

PTR’s cost of equity forecast is 6.9% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2011 and 2019. The current forecast is above the 2016 low of 4.1%.
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At ManTech International’s current price of $57.84, investors are placing a negative value of $-1 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 4.0% per year, and a return on equity of 6.8% versus a cost of equity of 5.9%.
PTR’s 2021 Price Target of $54 is based on these forecasts and reflects an estimated value of existing assets of $49 and a value of future investments of $5.

About John Lafferty 69939 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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