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The KEYW Holding Corp.

KEYW

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Shares of The KEYW Holding Corp. (KEYW - Snapshot Report) gained significant momentum following its solid first quarter 2012 results. The company’s strong bookings and increased visibility for product offerings to the private sector are also contributing factors. This provider of cyber security and geospatial technology solutions is a Zacks #1 Rank (Strong Buy) with shares that have surged 29.43% over the last 90 days.

KEYW Fires On All Cylinders in 1Q

On May 1, KEYW Holding reported that first quarter earnings per share soared to 12 cents , compared to 3 cents in the year ago quarter. The result comprehensively beat the Zacks Consensus Estimate of break-even.

The strong year-over-year performance was primarily driven by robust growth in revenues and operating margin. Revenue surged 34.0% year over year to $55.8 million, primarily based on contributions from the acquisitions of JKA Technologies (in March 2011), Forbes Analytic Software (in May 2011) and Flight Landata (in August 2011).

This fully offset the decrease in the Air Force services business and revenue loss related to the AURA contract, which was awarded to a competitor in the fourth quarter of 2011 by the U.S. Government. Most significantly, the company won $52.6 million in new bookings during the quarter.

The gross margin expanded 450 basis points (bps) on a year over year basis to 33.9% in the quarter, reflecting the improving product mix. Adjusted EBITDA margin increased to 12.9% in the quarter from 8.0% in the year-ago quarter.

Although the company did not provide any guidance for the upcoming quarter and full year, we believe that KEYW Holding will continue to benefit from its strong backlog, which stood at $452.0 million (2.4X 2011 revenue) at the end of fiscal 2011.

We believe that KEYW Holding has significant growth opportunities going forward from the incremental U.S. defense spending on cyber security (9.1% annual growth rate through 2015) and geospatial technologies. We believe that upcoming commercial solutions (possibly in the first quarter of 2013) will further boost top-line growth in the long term.

Following the results, the Zacks Consensus Estimate for 2012 went up by a penny (12.5%) to 9 cents while the outlook for 2013 increased 3 cents (9.7%) to 34 cents.

KEYW Holding Deserves a Premium Valuation

Currently, KEYW Holding is trading at a premium to most of its peers based on P/E, P/S and PEG. Its strong growth prospects indicate room for further significant expansion.

KEYW Holding shares are up 30.1% over the last 6 months as compared to a mere 3.8% increase for the S&P 500. The stock is currently above its 50 and 200 day moving averages of 9.16 and 8.09, respectively.

Incorporated in Maryland and headquartered at Hanover, The KEYW Holding Corp. develops cyber security and geospatial intelligence solutions to U.S. defense organizations, intelligence and national security agencies. KEYW Holding derived 97.0% of its fiscal 2011 revenue from the federal government.

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