Why Amentum's Strong Backlog and Defense Tailwinds Make It a Buy Despite Recent Fund Exits

The recent exit of Engine Capital from Amentum (AMTM) has sparked speculation about bearish sentiment in the defense sector. However, a closer examination of the fund's actions-and the broader context of U.S. defense spending-suggests this move is more indicative of portfolio rebalancing than a lack of confidence in Amentum's long-term prospects. With a $47.1 billion backlog, robust free cash flow generation, and alignment with critical defense-sector trends, Amentum remains a compelling investment despite short-term fund exits.

Fund Exits as Rebalancing, Not Bearish Signals

Engine Capital's decision to exit Amentum in 2025 aligns with broader shifts in private equity's approach to the defense industrial base. As private equity firms increasingly prioritize sectors with higher growth potential or shorter investment horizons, exits like Engine Capital's may reflect strategic reallocation rather than pessimism about Amentum's fundamentals. According to a report by , defense companies are not exiting the market at an accelerated rate, and those that do often cite challenges with Department of Defense (DoD) contracting processes as a primary concern. Meanwhile, the FY2025 Defense Appropriations Bill emphasizes investments in emerging technologies, supply chain resilience, and small business innovation, signaling a structural shift in priorities that may prompt funds to adjust their holdings accordingly.

Amentum's Financial Strength and Contract Visibility

Amentum's financials underscore its resilience. For fiscal year 2025, the company reported $14.4 billion in revenue, with adjusted EBITDA of $1.1 billion and free cash flow of $516 million-a 100% year-over-year increase. Its backlog of $47.1 billion as of October 3, 2025, represents a significant near-term revenue stream, bolstered by a book-to-bill ratio of 1.6 in the fourth quarter. Analysts project free cash flow to grow to $1.15 billion in 10 years as the company scales its contract base.

Amentum's portfolio is further strengthened by mission-critical contracts. In Q4 2025 alone, the company secured awards totaling $7.6 billion, including a $4 billion Space Force Range modernization contract and a $1.8 billion nuclear remediation agreement at Sellafield. These contracts align with the DoD's focus on space systems, hypersonic defense, and nuclear energy, positioning Amentum to benefit from multiyear spending trends.

Defense Sector Tailwinds and SIPV Model Projections

Long-term defense spending trends reinforce Amentum's strategic positioning. The SIPV (Single-Indefinite-Delivery/Indefinite-Quantity) model, which emphasizes contract visibility and stability, highlights the sector's resilience. According to the Congressional Budget Office (CBO), U.S. defense budgets are projected to grow from $850 billion in 2025 to $965 billion by 2039 in real terms, driven by operational and acquisition costs. Amentum's involvement in infrastructure, logistics, and advanced engineering services places it at the forefront of this growth.

A discounted cash flow (DCF) analysis suggests Amentum's intrinsic value is $51.80 per share, significantly above its current price of $22.55. This 56.5% undervaluation, combined with a 10-year free cash flow growth projection of $912.5 million, underscores the company's potential to outperform as defense spending accelerates.

Addressing Backlog Discrepancies and Market Concerns

While some reports cite a backlog of $44.6 billion as of June 2025, Amentum's official Q4 2025 results confirm a $47.1 billion backlog. This discrepancy likely stems from differences in reporting timing or methodology, such as the inclusion of joint ventures or newly awarded contracts. The company's consistent backlog growth-from $45 billion in September 2024 to $47.1 billion in October 2025-demonstrates its ability to secure and retain high-value contracts.

Conclusion: A Buy Despite Short-Term Volatility

While fund exits like Engine Capital's may create short-term noise, Amentum's financial strength, contract visibility, and alignment with defense-sector tailwinds make it a compelling long-term investment. The company's $47.1 billion backlog, $516 million in free cash flow, and strategic focus on space, nuclear, and hypersonic technologies position it to capitalize on a $965 billion defense budget by 2039. For investors seeking exposure to a resilient, undervalued player in the defense industrial base, Amentum offers a rare combination of stability and growth potential.