BUSINESS
Vertex Aerospace Services Holding Corp. was incorporated in 2018 and is based in Delaware, United States.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to exceed the cost of capital, VVX is expected to continue to be a Value Builder.
V2X has a current Value Trend Rating of C (Low Neutral). This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. V2X has a good Appreciation Score of 83 but a very low Power Rating of 11, with the Low Neutral Value Trend Rating the result.
V2X’s stock is selling well below targeted value. The current stock price of $46.17 compares to targeted value 12 months forward of $107.
V2X’s high appreciation potential results in an appreciation score of 83 (only 17% of the universe has greater appreciation potential.)
V2X has a Power Rating of 11. (This very low Power Rating indicates that V2X only has a better chance of achieving attractive investment performance over the near to intermediate term than 11% of companies in the universe.) Factors contributing to this very low Power Rating include: the Facilities Support Management Services comparison group is in an extremely unfavorable position currently; recent price action has been unfavorable; and earnings estimate behavior for V2X has been slightly negative recently.
INVESTMENT PROFILE
V2X’s financial strength is average. Financial strength rating is 47.
Relative to the S&P 500 Composite, V2X Inc has moderate Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that VVX is normal risk. Low forecasted profitability is a relative weakness for V2X. V2X’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. VVX has unusually low market capitalization.
CURRENT SIGNALS
V2X’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
V2X’s current technical position is mixed. The stock price is in a 1.6 month up move. The stock has appreciated 23.6% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
Significant positive changes in investment behavior have recently occurred for V2X Inc (NYSE: VVX): the stock’s recent price rise disrupted its longer term downtrend. Positive development: significant quarterly earnings acceleration occurred. Negative development: the consensus estimate for December, 2024 decreased significantly. The stock is currently rated C. V2X Inc (NYSE: VVX) stock increased 1.1% on 4/4/24. The shares closed at $46.17. However, trading volume in this advance was unusually low at 65% of normal. The stock has been weak relative to the market over the last nine months but has risen 2.2% during the last week.CASH FLOW
In 2023, V2X experienced a very significant reduction in cash of -$43.4 million (-37%). Sources of cash were much lower than uses. Cash generated from 2023 EBITDA totaled +$293.9 million. Non-operating uses consumed -$82.1 million (-28% of EBITDA). Cash taxes consumed -$2.1 million (-1% of EBITDA). Withdrawal of investment from the business totaled +$23.4 million (+8% of EBITDA). On a net basis, debt investors removed -$292.8 million (-100% of EBITDA) while equity investors furnished +$16.3 million (+6% of EBITDA).
V2X’s Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the V2x Peer Group. In most years, V2X was in the lower quartile and second quartile. Currently, V2X is lower quartile at -28% of EBITDA (-$82.1 million).
V2X’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the V2x Peer Group. (Since 2019 Cash Taxes, %EBITDA has experienced very sharp improvement.) In most years, V2X was in the third quartile and top quartile. Currently, V2X is upper quartile at -1% of EBITDA (-$2.1 million).
V2X’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the V2x Peer Group. In most years, V2X was in the top quartile and lower quartile. Currently, V2X is upper quartile at +8% of EBITDA (+$23.4 million).
V2X’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the V2x Peer Group. In most years, V2X was in the lower quartile and top quartile. Currently, V2X is lower quartile at -100% of EBITDA (-$292.8 million).
V2X’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by stability for the V2x Peer Group. In most years, V2X was in the top quartile. Currently, V2X is upper quartile at +6% of EBITDA (+$16.3 million).
V2X’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the V2x Peer Group. In most years, V2X was in the top quartile and lower quartile. Currently, V2X is lower quartile at -15% of EBITDA (-$43.4 million).
V2X’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the V2x Peer Group as well. In most years, V2X was in the top quartile and second quartile. Currently, V2X is at the lower quartile at +2%.
PROFITABILITY
V2X’s return on equity has eroded very significantly since 2014. The current level is -2.3% versus the high of 42.3% and the low of -2.3%.
The key to the story for VVX is a very strong negative trend in pretax operating return significantly augmented by a very strong negative trend in non-operating factors.
The productivity of V2X’s assets declined over the full period 2014-2023: asset turnover has suffered a very strong overall downtrend.
Reinforcing this trend, pretax margin experienced a very strong overall downtrend that accelerated very sharply from the 2023 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
V2X’s return on equity is lower quartile (-2.3%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is lower quartile (-0.8%) reflecting asset turnover that is lower quartile (1.29X) and lower quartile pretax margin (-0.6%).
Tax “keep” rate (income tax management) is upper quartile (92.1%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is at median (3.11X).
GROWTH RATES
There are no significant differences between V2X’s longer term growth and growth in recent years. V2X’s historical income statement growth has been lower than balance sheet growth. Revenue growth has fallen short of asset growth; earnings growth has fallen short of equity growth.Annual revenue growth has been 6.0% per year.
Total asset growth has been 15.4% per year.
Annual E.P.S. growth has been 5.1% per year.
Equity growth has been 24.5% per year.
No consensus growth rate forecast is available for V2X.
Relative to the V2x Peer Group, V2X’s historical growth measures are erratic. Equity growth (24.5%) has been upper quartile. Total asset growth (15.4%) has been upper quartile. Revenue growth (6.0%) has been lower quartile. E.P.S. growth (5.1%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, V2X’s stock price performance has been variable and in line with the market. Between September, 2014 and April, 2024, V2X’s stock price rose +136%; relative to the market, this was a -9% loss. Significant price moves during the period: 1) December, 2018 – January, 2020: +158%; 2) September, 2016 – July, 2017: +123%; and 3) August, 2016 – September, 2016: -55%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -17.0% is lower quartile relative to the S&P 500 Composite. In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -17.0% is lower quartile relative to V2X Inc Peer Group.
Current 5-year total return performance of 7.4% is below median relative to the S&P 500 Composite.
Through February, 2024, with below median current 5-year total return of 7.4% relative to S&P 500 Composite, V2X’s total return performance is lower quartile relative to V2X Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, VVX’s overall valuation is exceptionally low. Ratio of enterprise value/earnings before interest and taxes is at the lower quartile. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable.
Relative to V2X Peer Group, VVX’s overall valuation is low. Ratio of enterprise value/earnings before interest and taxes is at the upper quartile. Ratio of enterprise value/revenue is below median. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable.
V2X has a very large value gap compared to the median valuation. For VVX to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.66X to 0.76X. If VVX’s ratio of enterprise value/revenue were to rise to 0.76X, its stock price would be lower by $12 to $58. For VVX to hit lower quartile valuation relative to the V2X Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 0.66X to 0.54X. If VVX’s ratio of enterprise value/revenue were to fall to 0.54X, its stock price would decline by $-15 from the current level of $46.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to exceed the cost of capital, VVX is expected to continue to be a Value Builder.
V2X’s current Price Target of $119 represents a +157% change from the current price of $46.17.
This high appreciation potential results in an appreciation score of 83 (only 17% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 83, the low Power Rating of 11 results in an Value Trend Rating of C.
V2X’s current Price Target is $119 (+43% from the 2023 Target of $83 and +157% from the 04/04/24 price of $46.17). This dramatic rise in the Target is the result of a +29% increase in the equity base and a +10% increase in the price/equity multiple. The forecasted decline in growth has a large negative impact on the price/equity multiple and the forecasted increase in cost of equity has a large negative impact as well. More than offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 12.1% — slightly above our recent forecasts. Forecasted return on equity suffered a dramatic, variable decline between 2015 and 2023. The current forecast is significantly below the 2015 peak of 30%.
PTR’s growth forecast is 16.0% — significantly below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2019 and 2023. The current forecast is well above the 2019 low of 9%.
PTR’s cost of equity forecast is 8.4% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is well below the 2015 peak of 15.2%.
At V2X’s current price of $46.17, investors are placing a positive value of $8 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 27.0% per year, and a return on equity of 10.0% versus a cost of equity of 8.0%.
PTR’s 2025 Price Target of $119 is based on these forecasts and reflects an estimated value of existing assets of $47 and a value of future investments of $71.
Be the first to comment