The Gazette: Vectrus stock surges on $1.38 billion contract award

Apr 15, 2019

By Wayne Heilman

Vectrus stock surged to record levels Monday after the Colorado Springs-based defense contractor landed a $1.38 billion Army contract to provide logistics services to regional commands in the Middle East and Asia.

The company’s stock jumped to more than $40 a share, its highest price since Vectrus was spun off as a separate company from Exelis in 2014. Later Monday, the stock drifted back to $39 — up $9.26 or 31.1 percent — and recorded its biggest trading volume in 2½ years. The closing price was the company’s highest in nearly a year and up more than 80 percent this year. The stock gained another 73 cents in after-hours trading.

The award is the second largest of four totaling $3.5 billion made Friday under the Logistics Civil Augmentation Program (LOGCAP) 5 contract. All awards are for five years with five one-year options with a ceiling of $82 billion. Kellogg Brown & Root Services Inc. landed the largest contract at nearly $2 billion for work in Afghanistan, North America and Europe. Fluor Intercontinental Inc. and PAE-Parsons Global Logistics Services received contracts totaling $171.8 million for work in Africa and Latin and South America, respectively. Vectrus issued a news release confirming it won the contract and affirming its financial forecast for 2019. That’s because the company has a bridge contract for similar work that was extended last month until March 2020. The work can be extended another six months, in case the awards are protested by one of the two losing bidders, which included AECOM and DynCorp International Inc., an incumbent on the previous contract.

Joseph DiNardi, managing director of the transportation and logistics sector for Stifel Financial Corp., called the award “a significant win for the company and an impressive turnaround executed by management. Once Vectrus starts ramping up on the newly contracted work, which may not be until mid-2020, it should see substantial revenue growth (more than 30 percent), based on the revenue production of the commands it has won.”

DeNardi estimated the contract could eventually boost Vectrus’ annual revenue by up to $600 million, or 42 percent, and increase its profits by at least 25 percent and perhaps more than 70 percent.

The company’s largest contract — the Kuwait-Base Operations and Security Support Services (K-BOSSS) contract — will be folded in the LOGCAP 5 contract. The K-BOSSS contract generated more than 40 percent of the nearly $1.3 billion in revenue Vectrus reported last year. The Army in March added a year to that contract, valued at $548 million.

Vectrus lost the K-BOSSS contract in 2016 to another bidder. The company successfully protested that award, and the Army instead combined that work with the larger LOGCAP contract. The initial loss of the K-BOSSS contract prompted Vectrus to replace its CEO and lay off 64 employees from its Colorado Springs headquarters staff.

Since then, Vectrus restructured its operations to better compete for military contracts and last year landed $350 million in new work that will generate revenue in some cases through 2027. The LOGCAP contract is a key part of the company’s goal to double its revenue during the next five years to $2.5 billion and double its profit margin to 7 percent by combining its strengths in logistics and information technology.