VSE Corporation: Defending Strong Fundamentals
Paul Price submits:
VSE Corporation (VSEC) serves as a centralized management and consolidating entity for business operations. Their business consists of diversified program management, logistics, engineering, information technology ((IT)), and construction program and consulting services performed on a contract basis. VSE’s contracts are with agencies of the United States government and other government prime contractors, non-government organizations and commercial entities. They conduct operations under four principal segments: Federal, International, IT, Energy and Management Consulting and Infrastructure.
VSE Corp has been a sensational long-term grower, and its share price has reflected its fundamentals. VSEC shares grew from a (split-adjusted) 2001 low of $2.66, to a peak price in 2007 as EPS surged from $0.20 to $2.82 over that six-year period. Since then, earnings have continued to grow with the company reporting fully diluted EPS of $3.74 in 2008 and $4.67 in the period concluded on December 31, 2009.
Despite these stellar results, VSEC closed on Feb. 26th at $42.53 /share or just 9.1x trailing earnings. The shares had hit $54 as recently as January 21, 2010. Why did they sell off by about 17% last Friday? Q4 earnings came in at $1.01 versus $1.05 last year, and management also indicated that contract delays would hurt first half revenues and earnings.
Here are the VSEC’s per share numbers as reported by Value Line:
|
Year
|
Sales
|
C/F
|
EPS
|
Div.
|
B/V
|
Avg. P/E
|
|
2001
|
25.94
|
0.52
|
0.20
|
0.08
|
3.83
|
16.5x
|
|
2002
|
30.74
|
0.47
|
0.15
|
0.08
|
3.90
|
26.1x
|
|
2003
|
30.36
|
0.72
|
0.45
|
0.08
|
4.30
|
12.9x
|
|
2004
|
47.44
|
1.04
|
0.75
|
0.10
|
5.06
|
13.5x
|
|
2005
|
59.36
|
1.61
|
1.29
|
0.12
|
6.39
|
12.2x
|
|
2006
|
75.97
|
2.02
|
1.61
|
0.14
|
7.99
|
11.2x
|
|
2007
|
129.28
|
3.48
|
2.82
|
0.16
|
11.16
|
13.3x
|
|
2008
|
204.71
|
4.80
|
3.74
|
0.18
|
14.93
|
8.7x
|
|
2009
|
202.09
|
6.22
|
4.67
|
0.19
|
19.40
|
8.6x
|
The company is debt-free, pays a 0.47% current yield (at just a 4.3% payout ratio) and now trades at near its lowest P/E in the past decade.
A rebound to a still-below-normal multiple of 12.5x last year’s earnings would lead to a target share price of $59.50 or about 40% above last Friday’s closing quote. Is that reasonable?
As noted earlier, VSEC touched $63 in 2007 on EPS of just $2.82, and they hit $54 just six weeks ago before the record 2009 earnings of $4.76 /share were formally announced.
I originally wrote this one up on September 2, 2009 at $33.30/share. I used last week’s drop to add to my position.
Disclosure: Author is long VSEC
Investing, Long Term Investment, stock market | admin March 1, 2010
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