Science Applications International Corporation (SAIC) stands as a premier technology integrator. Its extensive array of offerings within defense, space, civilian, and intelligence sectors comprises secure high-end solutions spanning engineering, digital services, Artificial Intelligence (AI), and mission solutions.
The company's strategic expansion plans are clearly evident from its efforts to secure major contracts over the past few months. In March alone, the company achieved the milestone of securing three major contracts totaling $834 million in value.
Furthermore, SAIC is dedicated to returning value to its shareholders through quarterly dividend distributions. On March 15, 2024, SAIC declared a quarterly dividend of $0.37 per share, payable to its shareholders on April 26, 2024.
The company’s annual dividend of $1.48 translates to a 1.17% yield on the prevailing price level, while its four-year average dividend yield is 1.58%. Over the past five years, its dividend payouts have grown at a CAGR of 3.6%.
However, the company’s shares faced a major setback following its lackluster fiscal 2024 fourth-quarter results announced recently. Both top-line and bottom-line figures suffered notably due to the sale of its supply chain business and the deconsolidation of the Forfeiture Support Associates J.V. (FSA).
In addition, its adjusted EBITDA as a percentage of revenues for the quarter decreased to 7.3%, down from 8.7% in the prior-year quarter. In light of the underwhelming fourth-quarter performance, Jefferies, a global investment banking firm, revised its assessment of SAIC by lowering the stock's price target from $150 to $145.
Meanwhile, the stock’s institutional holdings reveal a mixed picture. Among 440 institutional holders, 178 have expanded their positions, whereas 184 have decreased their holdings.
After a 23.9% rally over the past year, the stock has plunged 6.4% over the past month to close the last trading session at $126.72.
Here are the fundamental aspects of SAIC that could influence its performance in the near term:
Weak Financials
For the fiscal fourth quarter that ended on February 2, 2024, SAIC's revenue dropped 11.7% year-over-year to $1.74 billion. The company’s net income and EPS came in at $39 million and $0.74, down 48% and 44.8% from their year-ago values, respectively.
Moreover, as of February 2, 2024, SAIC’s cash and cash equivalents stood at $94 million, declining 13.7% compared to $109 million as of February 3, 2023. Also, its adjusted EBITDA plunged 25.7% from the prior-year quarter to $127 million.
Discounted Valuation
In terms of forward non-GAAP P/E, SAIC is trading at 16.18x, 12.1% lower than the industry average of 18.41x. Likewise, its forward EV/Sales of 1.20x is 32.3% lower than the industry average of 1.78x. Furthermore, the stock’s forward Price/Sales multiple of 0.91x is 37.6% lower than the 1.45x industry average.
Mixed Profitability
The stock’s trailing-12-month gross profit and EBITDA margins of 11.75% and 9.12% are 61.3% and 33.2% lower than the 30.36% and 13.65% industry averages, respectively.
However, its trailing-12-month Return On Common Equity (ROCE) of 29.14% is 142.9% higher than the industry average of 12%. Likewise, SAIC’s trailing-12-month asset turnover ratio of 1.36x is 71.8% higher than the 0.79x industry average.
POWR Ratings Exhibit Mixed Prospects
SAIC’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SAIC has a D grade for Growth, consistent with its weak financial growth in its latest quarterly results.
On the other hand, the stock’s B grade for Value is justified by its lower-than-industry valuation metrics. Meanwhile, its C grade for Quality is in sync with its mixed profitability metrics.
Within the Technology - Services industry, SAIC is ranked #28 out of the 81 stocks.
Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Sentiment. Get all SAIC ratings here.
Bottom Line
SAIC appears to face a setback stemming from its lackluster fiscal fourth-quarter results. On top of it, the company’s mixed institutional holding changes and ambiguous profitability metrics further contribute to the uncertainty regarding its near-term prospects.
However, despite these short-term challenges, SAIC's long-term prospects appear promising, supported by its discounted valuation metrics, strategic focus on enhancing shareholder value, and significant contract wins.
To that end, investors may want to consider monitoring the stock as opportunities for growth may emerge in the future.
How Does Science Applications International Corporation (SAIC) Stack Up Against Its Peers?
While SAIC has an overall grade of C, equating to a Neutral rating, you may also check out these other stocks within the Technology - Services industry: Dropbox, Inc. (DBX), LiveRamp Holdings, Inc. (RAMP), and Leidos Holdings, Inc. (LDOS), carrying A (Strong Buy) ratings. To explore more Technology - Services stocks, click here.
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SAIC shares were unchanged in premarket trading Wednesday. Year-to-date, SAIC has gained 2.23%, versus a 8.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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