Defense Funds Fuel ManTech: Under the Radar

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FAIRFAX, Va. (TheStreet) -- U.S. Defense Secretary Robert Gates is streamlining his budget by cutting programs and boosting investments in areas he considers critical. "Cyber warfare," the use of computers and the Internet to intercept sensitive information, is poised for growth.

Fairfax, Va.-based ManTech International(MANT Quote) is a "buy"-rated small-cap stock that will profit from federal IT investment. The company has been serving government agencies since it was founded in 1968. ManTech's long-standing ties to government officials helps ensure a degree of safety. Its stock has a beta, a measure of market correlation, of 0.3, demonstrating low volatility.

ManTech's second-quarter net income increased 30% to $29 million, or 80 cents a share, as revenue climbed 11% to $514 million. Its gross margin jumped from 16% to 18% and its operating margin rose from 8% to 9%, helped by a decline in the cost of services as a percentage of revenue.

Its balance sheet holds $33 million of cash, translating to a quick ratio of 1.8. A debt-to-equity ratio of 0.03 reflects management's prudence. ManTech paid off $100 million of debt during the second quarter.

ManTech has been snatching up smaller cybersecurity players in recent years. The company bought DDK Technology, a cybersecurity firm focused on naval investigations, in March and threat analysis specialist EWA Services in December.

Those acquisitions were financed with cash and senior notes, minimizing balance sheet damage and maintaining flexibility in case other opportunities arise. Growing reserves suggest that management is preparing to make more purchases.