Amentum (AMTM): Deleveraging for Long-Term Growth
Unlocking shareholder value through a disciplined debt reduction strategy and robust free cash flow generation.
In our previous article, we discussed why Amentum (AMTM) represents a compelling post-spin opportunity for investors.
Trading at just 10x NTM P/E and offering a 10% free cash flow (FCF) yield, the company’s misunderstood potential lies in its $45 billion backlog, mission-critical contracts, and strategic alignment with long-term government priorities. However, one of the most important aspects of Amentum’s investment case is its plan to de-leverage its balance sheet, which will not only enhance financial flexibility but also directly impact shareholder returns. In this follow-up, we’ll take a closer look at the numbers behind Amentum’s deleveraging strategy and its implications for future earnings per share (EPS).
Deleveraging Goals: From 4x to 3x Net Debt to EBITDA
Amentum’s leadership has made it clear: reducing leverage is a top priority. As of FY2024, Amentum’s net debt to EBITDA stands at approximately 4.1x. Management aims to bring this down to 3.0x by the end of FY2026, a significant step toward improving the company’s financial stability and attractiveness to investors.
Here’s a breakdown of the key metrics:
Net Debt (FY2024): $4.32 billion (gross debt of $4.77 billion, offset by $452 million in cash).
Target Net Debt (FY2026): $3.3 billion to $3.45 billion.
Projected EBITDA (FY2026): $1.1 billion to $1.15 billion (including $60 million in planned synergies).
Achieving this target will require approximately $1.02 billion in net debt reduction, which the company plans to fund primarily through its robust free cash flow generation. With guidance for $475M-$525M in FCF annually starting in FY2025, Amentum has the cash flow muscle to meet its goals without compromising growth investments.
Why Deleveraging Matters
Interest Expense Savings: Reducing debt directly lowers Amentum’s annual interest expense, which is currently estimated at $334 million based on its weighted average cost of debt (~7%). By reducing gross debt by $1.02 billion, Amentum could save approximately $72 million annually in interest payments. This cost reduction improves profitability and frees up cash flow for other uses.
EPS Accretion: Interest savings flow directly to the bottom line, creating immediate value for shareholders. With 243 million fully diluted shares outstanding (FDSO), the $72 million in annual interest savings translates to approximately $0.30 in incremental EPS accretion by FY2026 - or a 7% CAGR assuming NO growth. For context, this is a meaningful contribution to earnings and underscores how deleveraging can enhance shareholder returns. (Excel image at the bottom)
Balance Sheet Strength: Amentum’s deleveraging not only reduces financial risk but also positions the company to pursue growth opportunities more aggressively. A stronger balance sheet increases the company’s flexibility for acquisitions, reinvestment in high-growth segments, and potential shareholder returns through dividends or buybacks.
This company ticks a lot of the boxes I look for in a portfolio. You can learn more about the portfolio metrics on which I focus in the article below:
Free Cash Flow Fuels the Plan
Amentum’s ability to generate significant free cash flow is the cornerstone of its deleveraging strategy. Here’s what we know: