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Sunday, October 25, 2020

Versar Inc. (NYSEMKT:VSR) Gap and Go

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Versar Inc. (NYSEMKT:VSR) is a penny player in the engineering and industrial services space that caught a major gap-and-go earlier this week. We’ve seen the move extend in recent days, and we thought it would be interesting to take a closer look. The primary catalyst behind the shift in mode is the company’s announcement that its long-term joint venture (JV) with Johnson Controls Federal Systems (JCFS) was awarded the Worldwide Engineering & Construction (WE&C) Indefinite Delivery Indefinite Quantity (IDIQ) contract by the Air Force Installation Contracting Agency (AFICA) in support of the Air Force Civil Engineering Center (AFCEC).

According to the release, the WE&C contract ceiling is $950 million over a five-year base period and three additional one-year option periods. The eleven selected firms will compete for individual task orders. Traders will note 93% during the past month in terms of shareholder gains in the stock, a bounce that has taken root amid largely bearish action over the larger time frame. However, VSR has evidenced sudden upward volatility on many prior occasions. What’s more, the stock has seen interest climb, with an increase in recent trading volume of greater than 1300% over what the stock has registered over the longer term.

Versar Inc. (NYSEMKT:VSR) operates as a project management company in the United States and internationally. The company operates through three segments: Engineering and Construction Management (ECM); Environmental Services (ESG); and Professional Services (PSG).

The ECM segment provides design services, such as planning, land use planning, space utilization studies, requirements definition and scoping, programming, cost estimates, infrastructure and traffic planning, privatization studies, and other feasibility studies; and construction management services, including construction oversight, inspection, job site evaluations, and construction documentation and other services. It also offers other related services comprising system optimization and commissioning, scheduling, and quality assurance/control; and actual construction services. This segment serves federal, state, local, international, and commercial clients.

The ESG segment provides environmental solutions consisting of remediation and compliance, exposure and risk assessment, natural resources, and unexploded ordnance/military munitions response programs; and air, greenhouse gas, energy, and cultural resources services to federal and state agencies, as well as to commercial customers.

The PSG segment offers an array of environmental management, planning, and engineering services to the DoD installations and to the U.S. Department of Commerce. This segment provides energy, water, and solid waste programs for various U.S. Army and U.S. Army Reserve installations; cleaning landfill and disposal sites; facility and utilities integration, water program management, and air quality program management; staff augmentation services; biological and physical sciences support services; logistics program management, operations, budgeting, and transportation support services; and onsite professional services.

Versar, Inc. was founded in 1969 and is headquartered in Springfield, Virginia.

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As the press release described, “the WE&C contract includes the full range of construction, engineering and design-build for new facilities, and repair, renovation, and/or restoration for existing facilities and infrastructure. Task order locations will primarily be outside the 48 contiguous United States (OCONUS) and will include sites in remote, austere, and high risk/contingency areas. There may also be task orders for large and/or complex projects within the 48 contiguous United States. Examples of such projects include, but are not limited to, airfield paving projects, renovation of historic structures, Sensitive Compartmented Information Facility (SCIF) or related security facilities, non-standard or unique structures, and design-build projects involving specialized Anti-Terrorism/Force Protection requirements.”

Tony Otten, Chief Executive Officer of Versar, said, “The JCFS/Versar JV is honored to have been awarded the WE&C contract. The JV now holds both contracts (Sustainment, Restoration, & Modernization (SRM) Acquisition Task Order Contract – SATOC and WE&C) that AFICA uses to support the Air Force’s built infrastructure requirements. Coupled with our portfolio of engineering and environmental contracts, Versar is uniquely positioned to support the Air Force across their entire asset management program. We look forward to continuing our long-term relationship with JCFS to provide AFICA the expertise and dedication to critical projects throughout the world.”

Currently trading at a market capitalization of $19.3M, VSR has a significant war chest ($3M) of cash on the books, which compares with about $21.1M in total current liabilities. One should also note that debt has been growing over recent quarters. VSR is pulling in trailing 12-month revenues of $185.1M. However, the company is seeing declines on the top line on a quarterly y/y basis, with revenues falling at -8.3%. As more color becomes clear on the name, we will review the situation and update our take. For continuing coverage on shares of $VSR stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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