Goldman Sachs analyst Noah Poponak initiated coverage on Amentum Holdings, Inc. ( AMTM ) with a Neutral Rating, and a price forecast of $21.

Per Poponak, Amentum has a lower relative valuation compared to its peers.

While its merger with Jacobs’ government services business presents opportunities for growth and margin expansion, it currently faces slower growth and lower margins than other companies in the industry.

Despite these challenges, Amentum’s large and diversified revenue base, including $14 billion in revenue and $45 billion in backlog, gives it scale that can drive success in the sector, the analyst writes.

The merger has the potential to increase margins and improve free cash flow and net income conversion over time.

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On the flipside, Poponak notes that Amentum faces sector headwinds, with expected revenue growth slowing or potentially turning negative due to new government efforts to reduce spending and the overall size of the federal government.

Additionally, Amentum's EBIT and free cash flow margins are lower compared to other companies in the government services sector. This could also result in slower growth.

This situation may be driven by more commoditized work, Poponak writes. The company's balance sheet, while offering potential upside if Amentum can reduce debt, is currently more leveraged than its peers.

This higher leverage may deter potential buyers, especially as market concerns about the sector’s future persist, the analyst adds.

The analyst mentions that the EBITDA projections for FY25 and FY26 are 2% and 3% higher than consensus estimates, respectively.

Poponak projects EPS to surpass both consensus and the company’s guidance.

However, the analyst anticipates a decline in revenue for FY27.

Price Action: AMTM shares are trading lower by 3.64% to $18.35 at last check Thursday.

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