top of page
6 days ago3 min read

BigBear.ai Awarded 5-Year Production Contract Valued at $165 Million to Deliver the U.S. Army’s Global Force Information Management - Objective Environment (GFIM-OE)

Summary:

  • BigBear.ai (NYSE: BBAI) announced a 5-year production contract worth $165 million with the U.S. Army for the Global Force Information Management - Objective Environment (GFIM-OE) system.

  • Two valuation approaches were used to analyze the stock's price. The direct approach estimates a post-disclosure price of $2.27, while the multiples approach, based on a historical price-to-sales (P/S) ratio of 1.6, suggests a slightly lower estimate of $2.05. Considering the potential for revenue expansion, a post-disclosure P/S multiple of 1.8x is deemed a more realistic expectation, aligning with the revenue growth indicated by the new contract.


Catalyst


BigBear.ai (NYSE: BBAI) announced on October 14th at 9:00 AM EST that it has been awarded a 5-year production contract, valued at $165 million, to deliver the U.S. Army's Global Force Information Management - Objective Environment (GFIM-OE) system. Following the announcement, the company's stock opened at $1.68, reflecting a $0.07 increase from the previous week's closing price of $1.61. By the end of the trading day, the stock closed at $1.91 per share.


Outline of Analytical Framework:


We analyze the potential impact of this catalyst by estimating the per-share revenue contribution from the awarded contract. First, we calculate the additional revenue generated by the $165 million contract and determine its impact on a per-share basis using the company’s total outstanding shares. Next, we assess BigBear.ai’s pre-disclosure price-to-sales (P/S) ratio as a reference multiple. By applying this multiple to the newly estimated revenue post-contract disclosure, we derive a range of potential valuations for the stock.


Revenue- Direct Approach


Given the company's historically negative net income, we believe that revenue is a much more critical driver of value for the stock under analysis. With 250,073,489 shares of common stock outstanding as of August 2, 2024, the awarded contract implies an incremental revenue of approximately $0.66 per share [2]. Based on the pre-disclosure closing price of $1.61, our analysis suggests a price estimate of $2.27, which would fully reflect the impact of the awarded production contract.



Multiples Approach


Based on historical revenue for the year ended 2023 and the share count, we estimated the pre-disclosure price-to-sales (P/S) multiple to be approximately 1.6 times revenue per share [3]. Under constant multiple assumption to the adjusted revenue level that incorporates the newly acquired production contract, we estimate a post-disclosure stock price to be $2.05 per share, an estimate slighlty less than what we derived from the 'direct approach'.



Multiples Approach - Various Multiples


One of the major shortcomings and pitfalls of the second approach to analyzing the impact lies in the assumption of a constant price-to-sales (P/S) multiple. This assumption could partially explain the divergence between the valuation estimates derived from the two presented cases. To address this concern, we provide the following table, which illustrates differing price estimates at various multiples based on the expected revenue per share calculated. The intervals for the P/S multiples are set at 0.2x increments.

Given that the revenue level is likely to undergo expansion aided by the awarded contract, we believe that a post-disclosure sales multiple of 1.8x, which aligns with our direct incremental revenue approach, is a more realistic expectation.


Source:

Komentarze

bottom of page