Small-Cap VSE Wants More of the Military’s Spending
The United States’ annual military budget is around $650.0 billion, and some suggest that it is as high as $890.0 billion, depending on how they count the numbers.
Whatever is the true number, the reality is that the country is building a massive collection of ships, jets, missiles, tanks, submarines, and other highly classified projects.
The defense sector is dominated by a few major players, but there are many smaller companies in the mix, trying to get money from the Pentagon.
A relatively thin trader that wouldn’t be on the radar of many investors is small-cap VSE Corporation (NASDAQ:VSEC), which traded at a 52-week range of $36.70 to a high of $59.90 in October 2017. VSEC stock trades a mere 22,000 shares daily.
While VSE stock is unknown to most investors, it has outperformed the S&P 500, gaining 29% over the past year.
VSE has been around for over 50 years as a provider of a broad range of engineering and technical solutions to help clients extend the service life of equipment, along with modern retrofitting. The company works with planes, ships, and other vehicles.
The defense sector is a key client. VSE is ranked among the top 100 defense contractors, top 10 foreign military sales contractors, and top 50 Navy contractors in the United States.
With all the money being thrown at the Pentagon, more of it could eventually find its way to VSE Corporation.
My Bull Case for VSEC Stock
VSE’s revenues have risen in three consecutive years, from $424.9 million in 2014 to $760.1 million in 2017, equating to a compound annual growth rate (CAGR) of 21.4%.
The company has also managed to drive its gross profits and earnings higher. Earnings surged to $3.60 per diluted share in 2017, up by almost 45.8% from $2.47 per diluted share in 2016.
VSEC stock trades for an attractive 13.6-times its 2017 earnings per share (EPS).
The recent tax reforms will lower the effective tax rate for VSE to around 24%, which will be a nice boost to the company’s earnings.
As far as the technical picture goes, VSEC stock has been drifting in a sideways channel since December 2017 after declining from the near-$60.00 level.
Chart courtesy of StockCharts.com
VSE stock is bounded by support at $46.00 and resistance at $52.00. The stock could be set to break out to the $55.00 level, followed by a retest of the high.
VSE is an under-the-radar stock with minimal coverage from Wall Street, despite the company’s decent growth metrics and profitability. This doesn’t mean you should ignore stocks like VSE, but instead you should take a closer look.