VEC - Vectrus (VEC) - Refining Model and Budget Update

Refining Model. We had an opportunity to speak with Vectrus management recently regarding our model for 2022. While we believe our annual numbers to be reasonable, we assumed a more historical split between first half and second half results than is likely to happen in 2022 as the Kwajalein and Ft. Benning contracts results in a more back weighted year. As a result, we have refined our model to reflect this.Updated Guidance. Our full year 2022 estimates remain unchanged: $1.86 billion of revenue, $86 million of adjusted EBITDA, EPS of $4.07, and adjusted EPS of $4.74. The quarterly cadence does change as we moved $38 million of revenue from the first half of the year into the second half. This results in 1Q22 revenue of $427 now, down from $445 million, and EPS of $0.60, down from a prior $0.73.Budget Update. Fiscal 2023 budget proposals by the Armed Services continue to play into Vectrus' strengths, with a boost from many areas in which Vertex has operational capability. The Army looks to repeat the Defender exercises in the INDOPACOM region. These exercises boosted the Company's results in 2021. Operations and Maintenance requests rise in the 4.0% to 5.5% range, which should be a benefit to Vectrus.Vertex Combination. We continue to believe the combination with The Vertex Company will be a winner. The combined company will offer significantly expanded technology and service capabilities, delivering a comprehensive suite of integrated solutions and critical service offerings to support national security readiness and modernization initiatives around the world.Maintaining Outperform. We are maintaining our Outperform rating and $62 twelve month price target. We believe the Vertex combination to be transformative, creating a global leader in mission-essential solutions. With the combination, the combined entity will play in an even larger pool with market trends supporting growth in the converged infrastructure market. Read More >>