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Why Vectrus Inc Shares Crashed Today

By Jeremy Bowman – Sep 30, 2016 at 3:57PM

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The government services provider tumbled after losing a key contract in Kuwait.


Image source: Vectrus. 

What happened

Shares of Vectrus Inc (VEC -2.87%) were plummeting Friday after the company said the government did not renew its contract to provide support services in Kuwait. Its current contract is set to expire on Dec. 28, 2016, and the stock fell 45.2% as of 2:33 p.m. EDT as a result.

So what

The contract under Kuwait Boss Operation and Security Support Services (K-BOSSS) was the largest in Vectrus's portfolio and has contributed $218 million in revenue through June 2016. Management said it "was reviewing the Army decision and will further determine the impact and the way ahead as they receive additional debriefing information."

With an annual revenue of $1.2 billion, the K-BOSSS contract is far from Vectrus's only piece of business, but the market may fear that losing the contract may spell similar news in the future.

Now what

With as much as $7 billion in potential new business over the next 12 months, Vectrus is by no means a long-term loser. The contract business can be rough on investors as the loss of a valuable deal like K-BOSSS often sends stocks tumbling. A month ago, the company also announced that another contract, which had contributed $93 million, in Kuwait and Qatar would not be renewed. At the same time, however, Vectrus won a $21 million contract in August, and earlier this week won one of five spots on a contract on a Navy Global Contingency contract, so the company is continuing to bring in new business.

The loss of the K-BOSSS contract could prompt Vectrus to lower its full-year guidance, which called for EPS of $2.07 to $2.32 and revenue of $1.18 billion to $1.2 billion, however I'd expect the stock to eventually bounce back from Friday's plunge as it brings in new business.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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