Why Aftermarket Distribution & MRO Services Provider VSE's Stock Is Jumping Today?

VSE Corporation VSEC has entered into an asset purchase and perpetual license agreement with Honeywell International Inc HON. VSE acquired the perpetual license and asset for $105 million. The purchase price also included $12 million of existing inventory. 

Under the agreement, VSE will exclusively manufacture and support certain of Honeywell's fuel control systems on four key engine platforms through its VSE Aviation business.

The company acquired certain contracts, equipment, and inventory from Honeywell and will utilize the acquired assets and the license to exclusively manufacture, manage aftermarket distribution, and repair more than 340 unique Honeywell fuel control systems. 

The agreement will expand VSE Aviation's existing capabilities, supporting Honeywell's fuel control systems and associated subcomponents.

"We expect this agreement to provide long-term, sustainable revenue and an improved mid-term EBITDA margin outlook for VSE Aviation from these critical and highly technical aircraft components and associated intellectual property," said President and CEO John Cuomo.

VSE expects to lower its net working capital requirements by approximately $10 million ratably throughout 2024 through lower inventory costs.

The company funded the purchase through a drawdown on its existing credit facility.

VSE has increased Aviation segment FY23 revenue growth outlook from 25% - 30% to 30% - 35%. It also increased Aviation segment FY23 Adjusted EBITDA margin guidance from 13% - 15% to 14% - 16%.

The company reaffirmed Fleet segment FY23 revenue guidance growth of 20% - 25% and adjusted EBITDA margin outlook of 11% - 13%.

Price Action: VSEC shares are trading higher by 7.28% at $52.00 on the last check Wednesday.