$50.19
$170.13
bear $50.19
base $120.72
bull $170.13
margin of safety $80.00
market price* $89.43
ICF International is a consulting and technology services firm of roughly $1.9 billion in annual revenue. It sells expert labor: program management, data and IT modernization, energy-efficiency programs, disaster-recovery administration, communications and research. In 2025, 43% of revenue came from U.S. federal agencies (most importantly the Department of Health and Human Services, the Department of Defense, the Department of Energy and the Department of Transportation), 17% from state and local governments, 7% from international governments and 33% from commercial clients, mostly electric and gas utilities. No single contract is more than 2% of revenue, the ten largest together are about 14%, and about 86% of work is performed as prime contractor. The business needs little capital. Equipment and software spending runs about 1.1% to 1.8% of revenue, so most profit turns into cash. What happened recently: In the first half of 2025, federal contracts were terminated and stop-work orders were issued under the Administration's executive orders and the Department of Government Efficiency. Federal revenue fell $279.5 million in 2025, most of it in health and social programs. Growth in commercial energy work (+$117.2 million) offset part of that, and total revenue fell from $2,019.8 million to $1,872.9 million. The decline has slowed but not stopped. First-half 2026 revenue was $912.0 million against $963.8 million a year earlier. In the second quarter, federal revenue was down 9.5% and now makes up about 39% of the total, commercial was up 5.9%, and international government work was up 35%. Backlog was $3.4 billion at the end of 2025 and about $3.3 billion in June 2026, roughly 1.8 years of revenue. How we measured earnings: We start from cash from operations and remove the swing in receivables and payables, which moves a lot from year to year. Then we subtract stock compensation as a real cost and subtract the equipment and software spending needed to keep the business running. On this basis, earnings per share rose from $3.58 in 2016 to $5.90 in 2021, $5.83 in 2022, $5.67 in 2023, $6.50 in 2024 and $7.29 in 2025. ICF spent about $750 million on acquisitions between 2020 and 2024, so years before 2021 describe a smaller company. Our starting level is therefore the median of 2021 to 2025, $5.90 per share. That is below the $7.29 earned in 2025, and we chose it on purpose. 2025 benefited from a change in tax rules on research spending, which lowered cash taxes after 2023 and 2024 had been held down by the old rules. It also does not yet show the full year of reduced federal work. Amortization of acquired customer relationships ($43.2 million in 2025) is a non-cash charge and is added back. It is scheduled to drop to $27.4 million in 2026 and $11.5 million in 2027. Those acquired contracts wear out and have to be won again, so our growth rates below count only organic growth, not the acquired book. We did not add back the growth that buybacks or future acquisitions might bring, because the cash to pay for them is already counted as earnings. Base case ($120.72 per share): Earnings stay flat at $5.90 in the first year while federal revenue keeps shrinking. For comparison, earnings actually grew 12.2% in 2025, so a flat first year is a deliberate step down. After that, earnings grow 3% a year through year 10, reaching about $7.70. Commercial utility programs, state and local disaster-recovery work and international government work keep growing, as they have through 2025 and the first half of 2026, while federal revenue stays about flat. After year 10, earnings stay flat in dollars and are never assumed to grow. We allow that much because ICF has served this client base for decades on thousands of small contracts it continually re-wins. About 59% of this value comes after year 10. Bear case ($50.19 per share): Federal work, 39% of revenue, shrinks by roughly another third over three years as agency budgets are cut and reorganized. Commercial energy-efficiency programs stall because state utility regulators control their budgets. Refinancing the credit facility, which matures on May 6, 2027, raises interest costs on about $406 million of debt. Earnings per share fall to $5.00, then $4.70, and settle at $4.50 through year 10. After that they fade to zero over 20 years, a business losing relevance rather than one that lasts indefinitely. Even in this case the company stays profitable and its debt remains serviceable. Bull case ($170.13 per share): The 2025 level holds. Earnings are about $7.00 in the first year, consistent with the strong $96.6 million of operating cash flow in the first half of 2026. They grow 5.5% a year through year 10, reaching about $11.33, as utility demand-management work, international government work and a steadier federal business all contribute. After year 10, earnings stay flat. All three cases discount at a fixed 6% and do not subtract debt, because debt costs are already taken out of the cash flows. Borrowing risk is reflected in the bear case instead. What would make this wrong: federal budget cuts reaching state programs and utilities, not just federal agencies; losing large recompetes at the Centers for Medicare & Medicaid Services or in disaster recovery; or a failure to refinance the 2027 credit facility on reasonable terms. We would be too cautious if the 2025 level of $7.29 per share holds. The margin-of-safety price is $80, about a third below the base case. That gap reflects a solid, cash-generative services business whose largest customer, the U.S. government, is in the middle of a policy-driven retrenchment. At that price our cautious starting level of earnings represents about 7% of the price, before any growth. We could not see the second-quarter 2026 quarterly report in full. Figures for 2026 come from its reported financial data and the company's results release, used only for dated facts such as revenue mix and backlog.