Like RTX? You’re Going To Love V2X (VVX) Even More

Defense stocks are a curious case. They enjoy constant demand for their products, high barriers to entry, and the lion's share of the government contracts is given to only a handful of businesses. Ostensibly, that’s great — an open-and-shut case.

Ostensibly. In reality, everyone and their mother knows about this, so finding an opportunity that isn’t already overcrowded is a tall order.

Thankfully, the fix is simple. First, we have to diagnose the problem. There’s nothing wrong with the theme of defense.

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The issue is that everyone always piles into the same names. RTX (NYSE: RTX), for example, has been generating a lot of buzz lately, on account of it having secured another multi-billion dollar contract; $6.6 billion for F35 jet engines, to be exact.

But what happens when you look at the fundamentals?

Our in-house rating system, Zen Ratings, looks at 4,600 stocks each day through the lens of 115 fundamental factors. Stocks are given letter grades, A to F — the A’s being your Strong Buys, the F’s being your Strong Sells. Only the top 5% of stocks qualify for an A rating, and they’ve provided an average annual return of 32.52% since the early 2000s.

Right now, RTX has a B rating — which corresponds to an average annual return of 19.88%. Still solid, but that’s plenty of alpha left on the table.

So, if the problem is that everyone invests in the same stocks because of how recognizable and popular they are, the solution is to look elsewhere. In the same sector, sure — but not the same names.

For example, V2X (NYSE: VVX) receives a fraction of the attention that RTX and other major defense contractors do. However, it has a Zen Rating of A — and currently ranks in the top 1% of the stocks that we track when it comes to overall fundamentals.

While it might not receive much coverage, it isn’t an obscure small-cap either. This is a $2.1 billion company that’s been in business for over a decade. Their operations are quite diverse — managing logistics and equipment, supporting military bases, and running IT and communication systems, plus data analytics, cybersecurity, and training. While VVX does also do business with the commercial sector, it gets roughly 96% of its revenue from government contracts.

Back on February 23, they delivered an EPS beat — the 6th consecutive one. Despite the strong execution, the stock has only rallied by a modest 2.66% since then.

Before we move on to metrics, I do want to stress that those 6 back-to-back beats weren’t slight outperformance; but genuine earnings surprises. Here’s how it went; the estimates vs the actual EPS:

Q4 2025 forecast $1.34 vs $1.56 

Q3 2025 forecast $1.22 vs $1.37

Q2 2025 forecast $1.03 vs $1.33

Q1 2025 forecast $0.93 vs $0.98

Q4 2024 forecast $1.15 vs $1.33

Q3 2024 forecast $1.05 vs $1.29

Those successes haven’t flown entirely under the radar. Despite the modest rally since the last beat, the VVX shares are up roughly 25% on a year-to-date (YTD) basis. But the opportunity hasn’t passed yet — V2X ranks in the top 6% of stocks when it comes to the Value Component Grade rating, thanks to a price-to-earnings growth (PEG) ratio of 0.66x and a forward price-to-earnings (P/E) ratio of just 12x.

Earnings growth for last year clocked in at 124%, way ahead of the industry average of 28.82%. In the last 5 years, revenue has grown by 26.27% — the industry average, meanwhile, was 7.18%. On top of that, analysts are expecting earnings to grow by 42.92% per year — while the expectation for the Aerospace & Defense industry is 18.17%. All in all, VVX is in the top 6% of with regard to the Growth Component Grade rating.

Safety is another strong point — here, today’s pick ranks in the 92nd percentile; equivalent to or better than 92% of stocks, or, in other words, in the top 8%. It has an established history of strong execution and a Beta of 0.8, so there’s no particular reason to expect a bumpy ride going forward.

Analyst estimates are mixed, but one of Wall Street’s top-rated analysts is quite bullish. BTIG’s Andre Madrid ranks in the top 14% of analysts in terms of actual stock picking performance, thanks to a win rate of 62% and an average return of 15.33%. Madrid has the Street-high price target of $90, which implies an upside of roughly 29% compared to current levels.

The downsides are Momentum and Financials. Don’t get me wrong, these aren’t major pain points — the stock ranks in the 75th and 72nd percentile in these categories, respectively, so it’s far from tragic, but there’s still room for improvement on that front.

Finally, they’ve recently signed a strategic partnership expansion with Elastic to enhance AI analytics for defense workflows, and they’ve extended their partnership regarding technical training with General Motors all the way through 2030. These catalysts might not seem major, but they do tell us two promising things: one, that the push toward AI analytics still has steam, and two, that commercial revenue, while still a minor portion of overall revenue, is sticky.

But those are details at the end of the day. The core thesis is incredibly simple. V2X is cheap, has beaten estimates consistently, and is expected to grow at a much faster pace than peers and rivals.

—> Click here to research VVX

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