Amentum: Defense Stock With A Major EU Catalyst

In an era of geopolitical fragmentation and rising defense budgets, the European Union's evolving security priorities are creating fertile ground for companies with cross-border capabilities. Amentum, a global leader in mission-critical engineering and technical services, stands at the intersection of these trends. While the company has long dominated U.S. defense markets, its strategic forays into the European Union—through infrastructure modernization, cybersecurity, and democratic governance support—are positioning it as a unique catalyst for long-term growth.

The EU's Defense Transformation: A Strategic Sweet Spot

The European Union's defense landscape is undergoing a tectonic shift. Post-Ukraine, member states are accelerating defense spending, with the bloc now allocating over €400 billion annually. Initiatives like the European Defense Fund (EDF) and the push for strategic autonomy from U.S. suppliers are driving demand for advanced logistics, cyber resilience, and energy security solutions. Amentum's expertise in these areas aligns perfectly with EU priorities.

A case in point is Amentum's £560 million contract with the UK's Defence Infrastructure Organization (DIO) to manage the UK Defense Training Estate. This seven-year deal, with potential extensions, involves maintaining 1% of the UK's land for military training, including environmentally sensitive sites. By modernizing facilities and integrating sustainability practices, Amentum is not only supporting UK readiness but also demonstrating a model for EU-wide infrastructure upgrades. The contract's scale and scope—encompassing four million meals annually and one million bed spaces—highlight the company's operational depth in high-stakes environments.

Equally significant is Amentum's $37.5 million OSCE contract, which deploys U.S. experts to bolster democratic governance in Central and Eastern Europe. This initiative, spanning 56 OSCE states, underscores Amentum's role in advancing U.S. strategic interests through soft power. By staffing OSCE field operations and election observation missions, the company is embedding itself in the EU's political and security architecture. This dual focus on hard and soft power—military readiness and democratic resilience—creates a durable value proposition.

Financial Resilience and Valuation Potential

Amentum's financials reinforce its appeal. For Q1 2025, the company reported $3.49 billion in revenue, with a $44.8 billion backlog providing visibility into future cash flows. While GAAP earnings missed estimates, adjusted EBITDA of $268 million and a 3.5% operating margin highlight operational efficiency. The recent divestiture of its Rapid Solutions business for $360 million has further streamlined the balance sheet, enabling strategic reinvestment.

The stock trades at a forward P/E of 12x, a discount to peers like Lockheed Martin (LMT) and Northrop Grumman (NOC). This valuation discount reflects underappreciation of Amentum's EU exposure. As the EU's defense spending grows by an estimated 4% annually, Amentum's cross-border contracts could become a material revenue driver. For instance, Norway's recent engagement with Amentum to study nuclear power options signals a broader trend: EU states seeking U.S.-backed technical expertise to diversify energy and defense supply chains.

Risks and the Path Forward

Amentum is not without risks. Government contract delays and joint venture transitions could impact short-term revenue visibility. Additionally, its reliance on U.S. federal spending—$5.7 billion in defense-related revenue in Q1—poses concentration risk. However, the EU's strategic pivot toward self-reliance is likely to mitigate this over time. Amentum's partnerships with EU-based entities, such as Mitie in the Landmarc joint venture, demonstrate its ability to navigate local market dynamics.

For investors, the key is to view Amentum through the lens of its EU catalysts. The company's dual role as a U.S. defense stalwart and a European modernization partner offers a unique hedge against geopolitical volatility. With the EU defense sector projected to grow at 6% annually over the next decade, Amentum's current valuation appears undemanding.

Conclusion: A Strategic Buy for the Long-Term

Amentum's strategic positioning in the EU defense landscape—spanning infrastructure, cybersecurity, and democratic governance—positions it as a high-conviction buy for investors with a 3–5 year horizon. The company's ability to leverage its U.S. capabilities in European markets, coupled with its financial discipline and robust backlog, creates a compelling case for appreciation. As the EU's defense industrial base continues to evolve, Amentum is poised to capture a disproportionate share of growth, making it a standout in an otherwise crowded sector.