Amentum (AMTM)

Government engineering solutions provider Amentum Holdings (NYSE:AMTM) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 1.3% year on year to $3.49 billion. The company expects the full year’s revenue to be around $14 billion, close to analysts’ estimates. Its GAAP profit of $0.02 per share was 71.4% below analysts’ consensus estimates.

Company Overview

With operations spanning approximately 80 countries and a workforce of specialized engineers and technical experts, Amentum Holdings (NYSE:AMTM) provides advanced engineering and technology solutions to U.S. government agencies, allied governments, and commercial enterprises across defense, energy, and space sectors.

The sector has historically benefitted from steady government spending on defense, infrastructure, and regulatory compliance, providing firms long-term contract stability. However, the Trump administration is showing more willingness than previous administrations to upend government spending and bloat. Whether or not defense budgets get cut, the rising demand for cybersecurity, AI-driven defense solutions, and sustainability consulting should benefit the sector for years, as agencies and enterprises seek expertise in navigating complex technology and regulations. Additionally, industrial automation and digital engineering are driving efficiency gains in infrastructure and technical consulting projects, which could help profit margins.

Amentum's competitors include major government contractors such as Booz Allen Hamilton, Leidos Holdings, SAIC, KBR, CACI International, and Parsons Corporation. In certain markets, it also competes with large defense contractors like Lockheed Martin, Northrop Grumman, and RTX Corporation, as well as specialized environmental services firms like Fluor Corporation and Bechtel.

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $13.96 billion in revenue over the past 12 months, Amentum is larger than most business services companies and benefits from economies of scale, enabling it to gain more leverage on its fixed costs than smaller competitors. This also gives it the flexibility to offer lower prices. However, its scale is a double-edged sword because it’s harder to find incremental growth when you’ve penetrated most of the market. To accelerate sales, Amentum likely needs to optimize its pricing or lean into new offerings and international expansion.

As you can see below, Amentum grew its sales at a sluggish 2.4% compounded annual growth rate over the last three years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a stretched historical view may miss recent innovations or disruptive industry trends. Amentum’s annualized revenue growth of 4% over the last two years is above its three-year trend, but we were still disappointed by the results.

This quarter, Amentum reported modest year-on-year revenue growth of 1.3% but beat Wall Street’s estimates by 2%.

Looking ahead, sell-side analysts expect revenue to grow 2% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Amentum’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 2% over the last three years. This profitability was inadequate for a business services business and caused by its suboptimal cost structure.

This quarter, Amentum generated an operating profit margin of 3.2%, up 1.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Amentum has shown poor cash profitability over the last four years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.8%, lousy for a business services business.

Taking a step back, we can see that Amentum failed to improve its margin during that time. Its unexciting margin and trend likely have shareholders hoping for a change.

Amentum’s free cash flow clocked in at $53 million in Q1, equivalent to a 1.5% margin. The company’s cash profitability regressed as it was 1.7 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Amentum reported $546 million of cash and $4.68 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.07 billion of EBITDA over the last 12 months, we view Amentum’s 3.9× net-debt-to-EBITDA ratio as safe. We also see its $217 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Amentum beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed significantly and its full-year revenue guidance was in line with Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.7% to $21.53 immediately following the results.

Updated: May 16, 2025 at 11:56 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Amentum, you should also grasp the company’s longer-term business quality and valuation.

Amentum isn’t a terrible business, but it doesn’t pass our bar. For starters, its revenue growth was weak over the last three years, and analysts don’t see anything changing over the next 12 months. And while its projected EPS for the next year implies the company will start generating shareholder value, the downside is its low free cash flow margins give it little breathing room. On top of that, its operating margins are low compared to other business services companies.

Amentum’s P/E ratio based on the next 12 months is 10x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $25 on the company (compared to the current share price of $21.73).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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