This tech company is a new spin-off and just received a contract to provide the U.S. Postal Service with maintenance and development support of its over 700 applications.
Perspecta Inc. (PRSP)
From Sure Dividend
On June 1, 2018, DXC Technologies (DXC), an IT services company, spun out its government services business into a new publicly traded company and merged it with two private equity owned government service companies. The new company is called Perspecta Inc. (PRSP).
Perspecta is comprised of three divisions:
(1) DXC’s legacy U.S. public sector business (USPS). Examples of services performed:
• Operating and maintaining the Navy’s IT network
• Medicare claims processing and fraud detection
• Incorporation of cloud capabilities into legacy government systems
(2) Vencore, formerly a private equity owned portfolio company. Examples of services performed:
• Cybersecurity services
• Big data analytics
(3) KeyPoint, formerly a private equity owned portfolio company, provides investigative services (background checks)
Perspecta will benefit from a stable outlook for government spending. Overall spending within the public sector market is expected to grow between 1.5% and 2.0% annually between 2017 and 2022 according to Deltek, Inc, a firm specializing in serving government focused firms. Further, the state and local government markets are anticipated to grow between 3.5% and 4.0% annually between 2018 and 2023 largely driven by demand for complex multi-year IT programs that require high levels of subject matter and regulatory expertise.
Perspecta has significant scale and is focused on fixed priced contracts which allow it to generate industry leading margins.
Despite these strengths, Perspecta trades at a discount to peers on most metrics. On an Enterprise Value to 2019 Revenue basis, PRSP trades at 1.5x multiple while peers trade at 1.2x. On an Enterprise Value to 2019 EBITDA basis, PRSP trades at 10.0x multiple while peers trade at 12.5x. On Price to 2019 EPS basis, PRSP trades at 11.6x while peers trade at 18.0x. We believe PRSP should trade at parity with peers which implies a ~$26.42 share price and ~19.6% upside. Including a $0.20 dividend, and PRSP should generate a 20.5% total return over the next twelve months.
Ben Reynolds, Sure Dividend, www.suredividend.com,ben@suredividend.com, August 2, 2018