ManTech International: Price Appreciation Justified?

| About: ManTech International (MANT)

It’s been a quite while since I took an initial look at ManTech International Corporation (NASDAQ:MANT). Back in April 2007, the stock was trading at 33.27. It now stands at 59.29, a 78% increase. It’s time to look at how the company has performed during this period to ascertain whether or not this price appreciation is justified and, if so, whether the current price represents a good buying point.

As of April 2007, the company had forecast 2007 earnings from continuing operations between 1.76 and 1.84 per share on revenue between 1.26B and 1.3B. These estimates were nicely exceeded with 2007 earnings from continuing operations of 1.95 on actual revenue of 1.45B. This represents 19% growth in EPS and 27% growth in revenue over the 2006 figures. Net income from continuing operations grew 21%. With regard revenue growth, it is important to note that organic revenue growth (non-acquisition related) was 16%. The three-year period ending December 31, 2007 saw an organic growth rate which averaged 14%.

The company recently reported the results of it second quarter of 2008 (see earnings call transcript). Revenue increased 33% (20% organic), net income increased 45%, and diluted EPS increased 41%. The company provided full year 2008 guidance which does not include future acquisitions or divestitures. They project revenue in the range 1.85B – 1.89B which represents a pro forma organic revenue growth rate of 17% - 19% without any future acquisitions. They project diluted earnings per share in the range 2.46 – 2.53 which represents 26% to 30% growth over 2007.

The company has a market cap of 2.08B corresponding to a stock price of 59.29. With a trailing-twelve-month EPS of 2.31, the TTM PE now stands at 26. In order to value the company, I will look at owner earnings [OE] which is defined as net income plus depreciation and amortization less capital expenditures and then use a DCF calculation to determine the growth expectation which is implied by the current price.

Based on the owner earnings for the first half of 2008 and on the company’s projection for its 2008 net income, I estimate 2008 owner earnings as 98.3M. With 10M in cash and 98M in debt, the company has an enterprise value of 2.17B and therefore is trading at an EV/OE multiple of 22. A DCF calculation, using an 11% discount rate, a 5-year growth period, and no terminal growth shows that the current price is based on the assumption of 23% growth. Given the company’s recent level of 20% organic growth, one might conclude that the stock is slightly over-valued. I will look to add to my position when the growth assumption of the trading price is near 20%. This would occur when the price is 52.85, approximately 11% below the current price.

When I first discovered ManTech, it had a market cap just over 1B placing it firmly in the small cap category. It has just crossed over into mid cap territory. Recently I have become quite interested in two of its much smaller cousins in the defense contracting industry. These are VSE Corporation (NASDAQ:VSEC) and CPI Aerostructures (NYSEMKT:CVU) with market caps of 190M and 46M, respectively. My most recent analyses of these companies can be found here and here.

Disclosure: I own shares of MANT, VSEC, and CVU.

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