Valuations for 3 Smallcap Defense Contractors

I recently reviewed the second quarter results and offered valuations for three small defense contractors: ManTech International  (MANT), VSE Corporation  (VSEC), and CPI Aerostructures (CVU).

The valuation approach I have taken is based on owner earnings, which is a variation on free cash flow. Basically, owner earnings is free cash flow with working capital removed from consideration. It is computed as net income plus depreciation and amortization minus capital expenditures, and adjusted for one-time items if necessary. An argument could be made for only subtracting off the portion of capex required for maintenance, thereby including growth capex in owner earnings. However, I generally take the more conservative approach and subtract out total capex.