Green and Gold fund Recommendation: Buy KEYW Holding Corporation
Investment Thesis • KEYW Holding Corporation is in a position to capitalize on the growing market of cyber security • Most of the revenue of KEYW comes from cyber security. • Their competitors have only a fractional amount of total production in cyber security(Example SAI).
Investment Key Points • High Growth of Cyber Security Attacks in the Commercial and Government Sectors • Increased Spending on Cyber Security by the U. S. Government • Acquisitions • Project G
Overview of KEYW • Founded in 2008 • Provides Cyber Security and Geospatial Intelligence Solutions to Government agencies ( Defense, Intelligence, and National Security) and Commercial Clients. • In 2012, Revenue was split up into Services(71%) and Integrated Solutions(29%) • The leadership is well experienced in cyber security (Leonard Moodispaw(CEO) has over 12 years experience in the cyber security arena. • Over 70% of employees have high level security clearances • Their employees have one many security awards including Security Global Excellence Award(2013)
Management Leonard Moodispaw President and CEO sinception Former President of Essex Corporation Former Vice President of Northrop Grumman Kim Dechello Chief Administrative officer since 2008 Former Chief Administrative officer of Essex Company Ed Jaehne Chief Strategy Officer Formerly in the Leadership of Essex and Northrop Grumman companies Mark Willard Chief Impact Officer Former Chief Financial Officer of Horne International John Crobath Chief Financial Officer since 2009 Former Director of Financial Operations of Kratos Defense & Security Solutions Inc
Growth of Cyber Security Attacks
Increased Spending by U. S Government • KEYW currently has 492 million dollars in backlog projects with the U. S government • According to Market Research Media “The Cyber security cumulative market is valued at $65. 5 billion (2013 – 2018), the U. S. Federal Cybersecurity market will grow steadily – at about 6. 2% CAGR(compound annual growth rate) over the next six years. ”
Acquisitions • Since 2008 KEYW has acquired 14 companies. Most recently in (2012) (Poole and Associates) and Sensage which were bought out for 160 million dollars • Sensage is a security analytics and data warehousing company. It has helped KEYW in its Project G efforts in cyber security • When they buy companies they do not buy them at auction • Part of the growth of KEYW is in its acquisitions • Some of the recent companies that KEYW has acquired are Rsignia(cyber security company), Poole and Associates (mission-centric provider of systems and software engineering services to the U. S. Intelligence Community)
KEYW Project G • Project G is a development of cyber security systems for the commercial sector. • It offers 24 hour automatic protection against cyber attacks. • The launch date is in the 2 nd quarter of 2013 • They started testing the system in mid 2012 (AT&T is one of the companies that started testing the new system in July 2012) § The names of the companies that are on the system will be released towards the end of 2013. § The projected growth in revenue from Project G is 30% of projected total revenue in 2015.
Revenue Growth Revenue in millions 450 400 396. 83 350 342. 86 300 250 243. 52 200 190. 59 150 107. 59 100 50 39. 04 0 2009 2010 2011 Years 2012 2013 2014
EPS Growth EPS 0. 8 0. 62 0. 6 0. 47 0. 4 0. 2 0. 11 0. 02 0 2008 -0. 18 -0. 2 -0. 32 -0. 4 2009 2010 2011 0. 04 2012 2013 2014
Free Cash Flow (in millions) 8 6 4 3. 31 2 0 -2 -0. 36 2008 2009 -3. 55 -4 -6 -8 -10 2010 -8. 54 2011 2012
The KEYW Holding Corporation 1 y Target Est: 17. 71 Beta: 1. 58 Next Earnings Date: 29 -Apr-13 52 wk Range: 7. 88 - 16. 45 Avg Vol (3 m): 330, 298 Market Cap: 527. 02 M P/E (ttm): 492. 33 EPS (ttm): 0. 03 Div & Yield: N/A (N/A)
Current Price Chart
KEYW Comparison to SAI • • SAI produces revenue from four areas. ¼ of its revenue comes from cyber security.
SWOT Analysis Strengths Opportunities §Growth in Cyber Security Attacks §Project G §New Acquisitions Weaknesses Threats §Possible cuts in Government spending §Increased Competition by other Security companies §High level relationship with U. S government §Experienced Leadership §Agile in response to cyber security attacks §Small company, a lot of room for growth §Most of the revenue comes from government contracts
Possible Strategies • Sector: IT/Telecom • Industry Group: Cyber Security Buy 300 shares of KEYW between 13. 25 – 13. 75, $3975 – $4125 0. 7% of Total Portfolio
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