Your Cheapest Way Into Nuclear and AI Power Might Be With This Government Contractor Stock

This government contractor is walking away from its worst-paying work on purpose, and its profits are climbing.

Meanwhile, it keeps landing nuclear, submarine, and AI infrastructure projects that look nothing like the old business. The stock is still priced like a sleepy outsourcing shop.

Amentum Holdings (NYSE: AMTM) is trading far below its 52-week high. Strange place to find a company posting record margins, chipping away at its debt, and collecting some of the most interesting contracts in government services.

If you still think of Amentum as the leftover half of a Jacobs carve-out that keeps federal facilities running, you’re a few chapters behind.

The company is steering toward nuclear engineering, submarine infrastructure, and AI power projects. The market is still pricing the old brochure.

Smaller sales, bigger profits

Amentum got hit hard after its latest quarter because revenue came in a touch lighter than a year earlier. Read one line further down, and the picture flips.

Adjusted EBITDA margin hit a record, and adjusted earnings per share cleared what the Street had braced for.

That’s what happens when you stop taking jobs that barely pay. Sales shrink a bit, and every dollar left over works harder.

Part of the earnings lift came from lower interest costs after a refinancing and debt paydown. That’s cash staying in the company instead of going to lenders, but it’s a balance sheet win, not an operating one. The margin line deserves most of the applause.

What management expects next

Management raised its full-year targets for adjusted EBITDA and adjusted earnings per share while trimming its revenue outlook. Contract protests, the timing of material purchases, and NASA bringing some work in-house were the culprits.

So the profit engine is running ahead of plan while revenue waits on paperwork.

The fiscal fourth-quarter report is next on the calendar, and it’s your first look at whether margins kept climbing. The market has already priced in disappointment, which makes the bar a lot easier to clear.

Leaving the cheap seats

Amentum is walking away from low-margin and no-margin contracts on purpose. That kind of work pads the top line and does almost nothing for profit. Think of it as a side hustle that pays in exposure.

The payoff is showing up where it counts.

Its engineering segment posted an 8.6% margin, ahead of the company-wide figure, and that’s the unit chasing the higher-value nuclear and technical work.

Every quarter that segment grows, the whole company looks better.

Nuclear is the center of gravity

Nuclear is already a sizable slice of the business, and Amentum keeps building around it. It landed more than $400 million of new commercial nuclear work in a single quarter.

It also teamed up with Westinghouse to speed up deployment of the AP1000 reactor and support licensing for the smaller AP300 design.

Then it opened a global nuclear headquarters in Oak Ridge, Tennessee, putting more than 150 specialists under one roof, plus a scholarship program to keep the talent pipeline full.

Nuclear projects run for decades, and it takes years to build the know-how to manage them. That’s a moat the share price isn’t crediting.

An AI campus on federal land

The National Nuclear Security Administration selected Amentum to negotiate a phased lease for an AI data center paired with dedicated on-site power at the Savannah River Site in South Carolina.

Selection isn’t a signed lease, and federal approvals take their sweet time.

Still, you’re getting a seat at the table for one of the biggest AI-and-power projects on government land, and the current price treats it like a footnote. Every step through negotiations and permitting chips away at the risk.

Submarines and Sellafield

Australia picked a joint venture of Amentum and Laing O’Rourke as capability partner for the nuclear-powered submarine construction yard at Osborne, under a long-term contract.

That yard sits at the heart of the AUKUS program, so this work isn’t going anywhere soon.

In the UK, Sellafield named an Amentum joint venture preferred supplier on a nuclear program worth up to $2.8 billion. The stock fell on the news. When the market hands you a multibillion-dollar win at a discount, you take it.

Debt coming down

Amentum walked out of its spinoff carrying a heavy debt load, and that’s been a big reason for the discount. Net leverage is now down to 3 times EBITDA, the level management had been aiming for.

Free cash flow guidance holds at $525 million to $575 million. That’s a lot of cash for a company this size, and every dollar of debt it retires trims interest costs and lifts earnings.

What comes after the paydown

With the debt goal in hand, the next question is what management does with all that cash. If some of it goes to buybacks at a single-digit earnings multiple, each share you own gets a bigger slice of the profits.

That’s a catalyst that doesn’t need a single new contract win.

A clearance-rack multiple

The stock trades at under 9 times forward earnings. Leidos, Booz Allen, and Science Applications all trade higher, and CACI fetches more than double.

Some of that gap reflects Amentum’s heavier debt and thinner margins. Both are moving in the right direction, and the discount is unchanged.

The targets sit above you

The average analyst price target sits well above where the shares trade. RBC recently trimmed its target, and even that lower number leaves you room to run.

When the analyst cutting a target still sees upside, the bear case has very little left to stand on.

Revenue is the number spooking the market. It slipped from a year earlier, and management cut the full-year range. On a stock screener, that looks like a business in retreat.

Look at what’s driving it. Contract protests pushed some awards out, NASA is pulling some work in-house, and Amentum is exiting contracts that earned little or nothing. Much of the lost revenue was low-margin work, which is why profits kept rising anyway.

The NASA drag won’t vanish overnight, so don’t expect a sudden snapback in sales.

The better gauge is the backlog, which runs into the tens of billions, and a book-to-bill above 1. That means new contracts are coming in faster than old ones are being worked down.

The margin story stalls. The whole case rests on margins grinding higher. If the next report shows margins flat while revenue keeps sliding, the market will call it shrinking instead of refining.

Washington drags its feet. Protests and slow award decisions have already pushed revenue out once. A drawn-out budget fight could delay new programs and freeze contract changes, and the stock gets little patience for a weak top line.

Big wins still need signatures. Savannah River is a selection, and Sellafield is a preferred-supplier spot. Neither is fully locked in.

Add debt that still runs higher than its peers’, plus free cash flow guidance that didn’t rise along with earnings, and there’s little room for a stumble.

Amentum is doing the unglamorous work of turning a sprawling contractor into a leaner nuclear and engineering specialist, and it’s already showing up in the margins.

The market is grading it on revenue and ignoring what the business is becoming. That gap is your opportunity.

I’d buy it here. You’re paying a single-digit multiple for rising margins, falling debt, and a pipeline packed with AI power, submarine infrastructure, and long-dated nuclear work.

What would change my mind is a report showing margins stalling, or one of the big selections falling apart. If the stock breaks and holds below $18, step back and reassess.

Entry zone: $20 to $23. Add on weakness toward $19. Target: $28 to $30 over 9 to 15 months. Confidence: high.

Looking to buy? Start a position in the $20 to $23 range before the fiscal fourth-quarter report. Leave room to add if a soft revenue headline knocks it lower.

Already own it? Hold. In the next report, zero in on the margin line, the backlog, and any word on the Savannah River lease talks or plans for returning cash.

Main risk to respect: If margins stop improving, the re-rating gets pushed back. Size your position so one soft quarter doesn’t shake you out.

That's our coverage for today; thanks for reading! Reply to this email with feedback or any value stocks you want me to check out.

Best Regards,
—Noah Zelvis
Undervalued Edge