Amentum's (AMTM) fiscal Q3 revenue growth missed estimates, and although profitability continues to improve, revenue growth must accelerate for the stock to re-rate higher, Morgan Stanley said Tuesday in a note.

The company's topline challenges continued as organic revenue growth of 1% fell short of Street expectations of 3%, driven by business delays and protests that led Amentum to lower its fiscal 2026 revenue guidance by 2%, according to the note.

The company's preliminary fiscal 2027 guidance calls for 0% to 1% revenue growth, versus Morgan Stanley's estimate and Street consensus of 4%. Revenue is expected to be impacted by NASA insourcing and select client exits, the note added.

Excluding the NASA headwind and client exits, Amentum expects to achieve mid-single-digit normalized growth in fiscal 2027, according to the firm. However, given the recent headwinds, the brokerage said it will wait for acceleration in growth.

Morgan Stanley believes the company has a "highly attractive and unique" end-market base, including Nuclear Generation, Space, and Critical Digital Infrastructure, accounting for about 30% of its portfolio.

Morgan Stanley kept an equalweight rating on Amentum and lowered its price target to $24 from $30.

Price: 21.98, Change: -0.45, Percent Change: -2.03