ManTech (Nasdaq:MANT) provides the government and its military organizations with security software, information technology support and related services. Over the past decade, it was one of the fastest-growing firms in the industry. Challenging industry conditions are making it look much more pedestrian and recent profit declines are looking severe compared to some larger rivals.

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Recent Developments
Back in May, ManTech reported a 3.5% sales decline to $676.5 million. Management cited growth in cyber security, but not enough to offset "industry-wide decreases in support to wartime missions." However, it did detail $308 million in new contract awards during the first quarter. This included an information technology system contract with the Federal Bureau of Investigation (FBI), media and professional support for the NASA space agency, and flight test support solutions for the Navy.

Net income fell a more severe 19.7% to $25.6 million from first quarter of 2011. General and administrative costs rose 6%, indicating that the revenue weakness caught ManTech off guard and it wasn't able to ramp down costs quickly enough. Earnings per diluted share fell 20.7% to 69 cents per diluted share, though operating cash flow improved by approximately five times to $52.2 million, which was due to a big jump in depreciation and amortization expenses.

See: What Is Dilutive Stock?

Outlook and Valuation
For the full year, ManTech projects sales of $3 billion and net income of $113 million, or $3.06 per diluted share. This would represent top-line growth of a couple of percent but a bottom-line decline of nearly 16%. At the current share price of $23 per share, the stock trades at a forward P/E of below eight.

SEE: The Forecast Period And Forecasting Revenue Growth

The Bottom Line
ManTech has a stellar track record and has grown sales and profits around 20% annually over the past decade. Unfortunately for the defense industry, the wind down of military activity in Iraq and Afghanistan, coupled with budget cutbacks, will make it difficult to grow at all going forward. ManTech does support military functions that are considered mission critical and cyber security activities should continue to increase, but on balance it will be lucky to grow modestly in the coming few years.

Income-minded investors may find ManTech's current dividend yield of 3.6% appealing, though rivals including SAIC (NYSE:SAI), Exelis (NYSE:XLS) and the giant defense operators of Lockheed Martin (NYSE:LMT) and Raytheon (NYSE:RTN) all have similarly-high yields. The larger players have a better likelihood of being able to offset tough sales trends with cost-cutting efforts, which could help maintain profits and dividend payouts. Investors may want to wait on the sidelines for ManTech until its profit slide subsides.

At the time of writing Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Tickers in this Article: MANT, LMT, RTN, SAI, XLS

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