Executive Summary / Key Takeaways

• Scaled Platform with Unmatched Backlog: The Jacobs (J) CMS merger created a $14.4 billion revenue powerhouse with $47.1 billion in backlog, providing revenue visibility that few government services peers can match and enabling operational leverage through integrated operations.

• Strategic Pivot to Accelerating Growth Markets: Divesting non-core product businesses (Rapid Solutions for $360 million) signals a capital-light focus on high-margin, long-duration markets like nuclear energy (addressable market doubling to $40 billion), space systems ($4 billion Space Force contract), and critical digital infrastructure.

• Margin Expansion Trajectory: FY2025 adjusted EBITDA margins of 7.7% are set to expand 20 basis points in FY2026, with management targeting 8.5-9% by FY2028 through synergy realization, contract mix improvement, and operational discipline—representing a fundamental inflection in profitability.

• Government Concentration Risk with Mitigation: While 81% of revenue comes from U.S. government contracts creating vulnerability to budget cycles, the mission-critical nature of work (nuclear security, space operations, chemical weapons demilitarization) provides defensive characteristics, while 20% commercial/international exposure offers growth diversification.

• Valuation Discount Despite Superior Visibility: Trading at 0.49x sales and 10.52x EV/EBITDA, Amentum trades at a meaningful discount to peers like Leidos (LDOS) (1.37x sales) and Booz Allen (BAH) (0.96x sales), despite a backlog that provides multi-year revenue visibility and a clear path to deleveraging below 3x net leverage by FY2026.

Setting the Scene: The Business of Mission-Critical Engineering

Amentum Holdings operates at the intersection of national security, energy resilience, and digital modernization, providing advanced engineering and technology solutions that governments and commercial entities cannot fail at. The company employs approximately 50,000 people across 70 countries, with a heritage stretching back to the Hoover Dam's construction and the Manhattan Project's environmental management. This legacy has forged relationships and security clearances that create a durable moat in the most sensitive government programs.

The modern Amentum emerged in September 2024 through a Reverse Morris Trust transaction that merged Legacy Amentum with Jacobs Solutions' Critical Mission Solutions business. This wasn't a typical acquisition—it was a strategic combination that created a platform capable of addressing the entire lifecycle of mission-critical infrastructure, from design and construction through operations, maintenance, and decommissioning. The integration, completed on time and within budget, demonstrates management's operational discipline while delivering a $47.1 billion backlog that provides revenue visibility extending years into the future.

Amentum makes money through two distinct but complementary segments. Digital Solutions (38% of FY2025 revenue) provides intelligence analytics, space systems development, cybersecurity, and next-generation IT services. Global Engineering Solutions (62% of revenue) handles large-scale environmental remediation, nuclear power solutions, platform engineering, and supply chain management across all seven continents. This bifurcation balances high-growth digital work with stable, long-duration engineering programs, creating a portfolio that can weather government spending volatility while capturing secular growth trends.

The industry structure favors scale players with security clearances and proven track records. Primary competitors include Leidos, Booz Allen Hamilton, SAIC (SAIC), and CACI International (CACI), all vying for similar government contracts. However, Amentum's unique positioning in nuclear energy and space operations—areas requiring decades of specialized expertise—creates differentiation that pure-play IT services firms cannot easily replicate. The addressable market for nuclear solutions alone is approximately $20 billion today, projected to more than double within a decade and potentially reach tenfold growth by 2050 as AI data centers and manufacturing drive baseload power demand.

Technology, Products, and Strategic Differentiation

Amentum's core technological advantage lies in what management calls the "digital thread"—the integration of AI, machine learning, and automation horizontally across every offering. This isn't merely a marketing phrase; it represents a fundamental shift from siloed engineering services to technology-enabled solutions that improve margins and create incremental value. In practice, this means that AI-enabled coding solutions for intelligence customers, digital infrastructure for commercial 5G networks, and predictive maintenance for nuclear facilities all leverage a common technological foundation, reducing development costs and accelerating deployment.

The Nuclear Center of Excellence in Oak Ridge, Tennessee, exemplifies this strategy. Opened in May 2025, this facility serves as a strategic hub for nuclear expertise across North America, consolidating capabilities from design and licensing through construction, operations, and decommissioning. Nuclear energy is experiencing a generational resurgence driven by AI data center power demands and energy security imperatives. Amentum's ability to offer full lifecycle services—particularly for Small Modular Reactors (SMRs)—positions it to capture premium margins in a market where regulatory complexity and safety requirements create massive barriers to entry. Approximately one-third of the company's energy and environment revenues (about $700 million annually) come from front-end engineering and design work that carries higher margins than traditional maintenance contracts.

In space systems, the $4 billion Space Force Range Contract (SFRC) awarded in Q3 FY2025 represents more than revenue—it secures Amentum's position at the intersection of government and commercial space operations. The 10-year single-award IDIQ contract deepens the company's partnership with the U.S. Space Force while expanding its capabilities in launch infrastructure, systems integration, and space flight operations. The space market is growing rapidly, fueled by both national security priorities and commercial satellite deployments. Amentum's operational focus differentiates it from competitors who may offer IT support but lack the hands-on engineering expertise for mission-critical space infrastructure.

The divestiture of Rapid Solutions for $360 million in June 2025 further sharpens the strategic focus. This product business didn't align with the capital-light, technology-enabled solutions model. The after-tax proceeds of approximately $325 million accelerate debt reduction and demonstrate management's discipline in allocating capital only to areas that support the core thesis. This move shows the company is actively pruning its portfolio to improve margins and focus on higher-return opportunities, a sign of mature capital allocation.

Financial Performance & Segment Dynamics: Evidence of Strategy Execution

FY2025 results provide compelling evidence that Amentum's strategy is working. Revenue of $14.4 billion grew 4% on an underlying basis after normalizing for the 53rd week, joint venture transitions, and divestitures. More importantly, adjusted EBITDA of $1.1 billion expanded margins by 10 basis points to 7.7%, driven by strong operational performance in both segments and cost synergy initiatives. This margin expansion occurred despite a higher non-labor mix in Q4, demonstrating underlying operational leverage.

The segment performance reveals divergent but complementary drivers. Digital Solutions generated $5.5 billion in FY2025 revenue, up from $2.0 billion in FY2024, with Q4 growth of 11% year-over-year. Adjusted EBITDA margins reached 7.9% in Q4, up 60 basis points year-over-year, driven by higher volume, favorable contract mix, and improved operational performance. Digital Solutions represents the higher-growth, higher-margin portion of the portfolio, and its acceleration validates the technology-enabled strategy. Management expects this segment to be the predominant growth driver in FY2026 as the Space Force contract ramps up.

Global Engineering Solutions contributed $8.9 billion in FY2025 revenue, with Q4 growth of 9% year-over-year. While this segment faces expected ramp-downs of historical programs, new contract awards and growth on existing programs more than offset these headwinds. Adjusted EBITDA margins of 7.5% in Q4 benefited from strong operational performance despite revenue volume impacts. GES provides the stable, cash-generating foundation that funds investments in growth areas and supports debt reduction. The segment's role in nuclear energy and environmental remediation creates long-duration revenue streams that competitors cannot easily displace.

Cash flow generation underscores the financial health. Free cash flow of $516 million in FY2025 enabled accelerated debt reduction, bringing net leverage to 3.2x ahead of expectations. The company ended the year with $437 million in cash and an undrawn $850 million revolver, providing ample liquidity.

This demonstrates that margin expansion is translating into actual cash generation, not just accounting leverage. The voluntary principal payments totaling $722 million on the Term Loan during FY2025 show management's commitment to deleveraging, which reduces interest expense and improves financial flexibility.

Outlook, Guidance, and Execution Risk

Management's FY2026 guidance reflects confidence in the strategy while acknowledging near-term headwinds. Revenue is expected in the range of $13.95 billion to $14.3 billion, representing 3% underlying growth at the midpoint. Adjusted EBITDA of $1.1 billion to $1.14 billion implies 5% underlying growth driven by 20 basis points of margin expansion. Management expects to grow earnings faster than revenue, a hallmark of operational leverage and synergy realization.

The guidance incorporates an approximately 1% impact from reduced Q1 spending due to the government shutdown and award delays. This assumption appears reasonable given the company's 81% government revenue exposure, but it also highlights the vulnerability to political dynamics. The key question is whether this represents a temporary timing issue or a more sustained budget pressure. Management's commentary suggests they view it as a timing shift rather than a fundamental demand change, with quarterly sequential increases expected as newly awarded programs ramp up throughout the year.

The pipeline provides reason for optimism. Less than 10% of FY2026 revenues are expected from new business, yet the company has $20 billion in submitted bids awaiting award decisions. Amentum is actively competing for growth while maintaining a stable base of existing contracts. The low recompete risk—only one of the top 10 programs up for recompete in FY2026—provides revenue stability that peers with higher contract turnover cannot match.

The path to 8.5-9% margins by FY2028 relies on a two-pronged strategy: growing core markets while expanding in accelerating growth markets. The latter—space systems, critical digital infrastructure, and global nuclear energy—are expected to be margin accretive and outpace the rest of the portfolio. Management is intentionally shifting the mix toward higher-value work, not just hoping for operational improvements. The 10 basis points of expansion in FY2025 and projected 20 basis points in FY2026 align with the trajectory toward the FY2028 goal, suggesting the target is achievable rather than aspirational.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is customer concentration. With 81% of FY2025 revenue from U.S. government contracts, any significant decrease in spending or shift in priorities could materially impact results. The government shutdown in late 2025 demonstrated this vulnerability, affecting approximately 1% of FY2025 revenues. While management has diversified into commercial and international markets (20% of revenue), the exposure remains elevated compared to peers like Leidos or Booz Allen who have more balanced portfolios. This creates earnings volatility that valuation multiples may not fully reflect, particularly in an environment of fiscal pressure.

Integration execution presents another risk. While the Jacobs CMS merger integration was completed on time and within budget, realizing the full $60 million in net run rate synergies by FY2026 requires flawless execution. Any slippage could pressure margins and delay the deleveraging timeline. The company's relatively recent public status (September 2024) means it has limited track record as a standalone entity, making it harder to assess management's long-term execution capability compared to more established peers.

Competitive dynamics in growth markets could pressure margins. While Amentum has unique positioning in nuclear and space, competitors are not standing still. Leidos has strong digital capabilities, Booz Allen leads in AI-driven intelligence, and SAIC has demonstrated ability to win large digital engineering contracts like the $1.4 billion COBRA task order. If competition intensifies in these high-growth areas, Amentum's margin expansion trajectory could face headwinds. The investment thesis relies on accelerating growth markets being margin accretive; competitive pressure could erode this advantage.

On the positive side, several asymmetries could drive upside. The nuclear energy market could expand faster than expected if AI data center demand accelerates or if SMR deployment timelines shorten. The $45 billion Hanford Integrated Tank Disposition Contract, awarded as part of a joint venture, represents a massive long-term revenue opportunity that isn't fully reflected in current guidance. Additionally, the company's ability to convert unconsolidated joint ventures to consolidated positions could provide incremental revenue and earnings upside.

Valuation Context: Positioning Relative to Peers and History

At $28.82 per share, Amentum trades at a market capitalization of $7.02 billion and an enterprise value of $10.75 billion. The valuation multiples reflect a company in transition: 0.49x price-to-sales, 10.52x EV/EBITDA, and 13.61x price-to-free-cash-flow. These metrics position Amentum at a discount to direct peers despite superior backlog visibility.

Comparing to key competitors reveals the valuation gap. Leidos trades at 1.37x sales and 12.02x EV/EBITDA with 8.11% profit margins and 9.49% return on assets. Booz Allen trades at 0.96x sales and 11.24x EV/EBITDA with 7.06% profit margins and 10.12% return on assets. SAIC trades at 0.96x sales with 5.05% profit margins. CACI trades at 1.48x sales with 5.70% profit margins. Amentum's 0.46% profit margin and 2.68% return on assets lag significantly, reflecting the post-merger integration phase and scale inefficiencies that have yet to fully materialize.

This margin gap explains the valuation discount but also represents the opportunity. If management achieves the 8.5-9% EBITDA margin target by FY2028, profitability metrics would improve dramatically, potentially justifying a multiple re-rating. The company's debt-to-equity ratio of 0.90x and net leverage of 3.2x are manageable, particularly given the stable cash generation from long-term contracts. The path to sub-3x leverage by FY2026 would further improve the valuation profile by reducing risk and interest expense.

The absence of a dividend (0% payout ratio) reflects management's focus on debt reduction and strategic investment rather than returning capital to shareholders. This capital allocation priority makes sense for a company in the early stages of integrating a major acquisition and targeting margin expansion. For investors, this means the story is about earnings growth and multiple expansion rather than income generation.

Conclusion: A Scaled Platform at an Inflection Point

Amentum Holdings represents a scaled government services platform at a critical inflection point where operational leverage from the Jacobs CMS merger meets strategic focus on accelerating, high-margin growth markets. The $47.1 billion backlog provides revenue visibility that peers cannot match, while the pivot toward nuclear energy, space systems, and critical digital infrastructure positions the company to capture secular tailwinds driven by AI infrastructure demands and energy security imperatives.

The central thesis hinges on execution of the margin expansion plan. The 20 basis points of expected EBITDA margin improvement in FY2026, building toward an 8.5-9% target by FY2028, must materialize through synergy realization and contract mix shift. If successful, Amentum will transform from a low-margin engineering services provider into a higher-margin technology-enabled solutions company, justifying a valuation re-rating toward peer multiples.

The key variables to monitor are government spending stability, competitive dynamics in growth markets, and integration execution. The 81% government concentration remains the primary risk, but the mission-critical nature of the work provides defensive characteristics. For investors willing to accept government budget volatility, Amentum's combination of scale, strategic focus, and margin expansion potential offers an attractive risk-reward profile at current valuation levels.