- The Washington Times - Monday, August 30, 2004

The federal government has become Anteon International Corporation’s best friend.

The Fairfax company, which provides information technology and engineering services to government agencies, is riding a wave of new defense and security spending, posting double-digit earnings growth and steady increases in its share price.

A 35 percent increase in spending by the Pentagon and a more than 250 percent increase in spending on homeland security since September 11 has been a boon for many government contractors.

But few have seen the contract awards and revenue boost experienced by Anteon this year.

The company reported second-quarter net income of $14.7 million (39 cents per share) compared with $10.3 million (28 cents) in the comparable period in 2003. Revenue during the same period rose to $304.2 million, from $254.1 million.

Shares of Anteon fell 79 cents to close at $32.61 yesterday on the New York Stock Exchange. They have risen more than 20 percent since hitting a 52-week low in March.

Analysts said Anteon has capitalized on a sector that is stable, and where money is currently being spent.

“The federal government has embraced outsourcing due to the shortage of qualified [information technology] people at the many federal agencies and the need for continuity on multiyear projects,” said Randall Scherago, a principal with BlueMatrix, a financial research firm in New York.

Anteon’s recent contract successes include a four-year deal to help manage programs with the Space and Naval Warfare Systems Command in San Diego, worth up to $320 million. It also won a $45 million contract to support the Aegis Ballistic Missile Defense Program, and a 10-year contract worth as much as $348 million to help modernize the Navy’s combat ships.

Anteon earned $465 million in new orders during the second quarter, and has a backlog of business worth $5.9 billion, a record-high for the company.

Analysts said they like Anteon’s ability to increase revenue from its own businesses, while also looking to expand outward.

The company on Aug. 11 said it paid $29 million for Integrated Management Services Inc., a provider of security services to the government. And on July 27 it paid $15 million for Simulation Technologies Inc., a maker of model and simulation software.

A sluggish economy could reverse some government spending trends, particularly if the federal budget deficit continues to grow. But, analysts said the defense and security programs involving Anteon will likely remain intact.

Still, some analysts warned investors that now may not be the best time to buy Anteon shares.

Legg Mason analyst William Loomis lowered his rating on Anteon from “buy” to “hold” last week, on the grounds that any good feelings about the company were already valued into the company’s stock price.

“While we believe Anteon is one of the best positioned companies in the industry and the company has historically posted very strong results … we believe most of the upside potential is currently priced in the shares,” Mr. Loomis said in a research note.

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