Let’s first take a quick look at how VSE Corp. (NASDAQ:VSEC) has been doing over the last 5 years and then look at the results of the first quarter of 2008.
Revenue has trended as follows:
During this period, revenue has been growing at an annualized rate of 49%.
Net income has trended as follows:
During this period, net income has been growing at an annualized rate of 63%.
Diluted EPS has trended as follows (adjusted for June, 2007 stock split):
During this period, diluted EPS has been growing at an annualized rate of 58%.
Funded backlog has trended as follows:
During this period, funded backlog has been growing at an annualized rate of 49%.
On April 29, the company reported the results of for the first quarter of 2008. On a year-over-year basis, revenue grew 56%, net income grew 32%, diluted EPS grew 27%, and funded backlog grew 48%.
Here are some considerations which will give us some idea of the current valuation:
Market cap: 164.5M
Share price: 32.47
Enterprise value: 158.1M
TTM EPS: 2.97
TTM owner earnings: 9.3M (computed as net income + D&A – total capex)
The PE and EV/OE figures are quite low in comparison with the growth rates this company has been experiencing. This suggests that the current price is quite attractive.
A reverse DCF calculation, using an 11% discount rate, shows that the current price is based on the assumption of 16% annual growth for 5 years and no growth thereafter. If we assume a 3% growth rate after year 5, then the current price reflects an assumption of 10% growth over the next 5 years. By these measures as well, the current price appears quite attractive.