SAIC (SAIC) Earnings: Will Defense Contracts Drive Future Growth?

June 04, 2024 at 06:42 AM EDT

Science Applications International (SAIC) reported strong financial results in the recently reported quarter. SAIC’s diverse portfolio, defense contracts with prestigious government organizations, strategic acquisitions, and technological innovation are key drivers of the company’s ongoing growth and success. So, should you buy this stock after its earnings? Read more to find out…

Science Applications International Corporation (SAIC), a prominent Fortune 500® tech integrator driving the nation's digital transformation across the defense, space, civilian, and intelligence markets, reported impressive fiscal 2025 first-quarter results. The company posted revenues of $1.85 billion and net income of $77 million.

“We reported solid financial results in the quarter as we began executing against our enterprise growth strategy introduced at SAIC's 2024 Investor Day,” said SAIC CEO Toni Townes-Whitley.

He added, "We are confident that the strategy and investments we are making best position the company to maximize long-term shareholder value. While we are seeing early indications of progress, we expect returns from our investments to further accelerate in FY26 and FY27."

During the first quarter, SAIC reflected upon its commitment to return surplus to its shareholders. The company’s Board of Directors declared a cash dividend of $0.37 per share of the company’s common stock, payable on July 26, 2024, to stockholders of record on July 12, 2024. Also, the company intends to continue paying dividends on a quarterly basis to its shareholders.

The company also secured two major awards from prestigious organizations like the U.S. Army and NASA, whose aggregate is approximately $726 million, setting a solid start for the fiscal year 2024. The contracts will allow SAIC to contribute to the organization’s segment goals.

Further, in May, SAIC announced the launch of Tenjin GPT, a new internal, generative Artificial Intelligence (AI) resource available to employees that harnesses cutting-edge AI capabilities to automate and optimize business processes. Technological innovation will empower its employees to upskill and improve productivity while reducing mundane tasks.

According to the fiscal year 2025 guidance, SAIC expects revenue to range from $7.35 billion to $7.50 billion. Its adjusted EBITDA is expected to be between $680 million and $700 million, and EPS to be $8.00 - $8.20. Also, the company’s free cash flow is expected to range from $490 million to $510 million.

Let’s look at factors that could influence SAIC’s performance in the upcoming months.

Positive Recent Developments

On May 9, SAIC was awarded a $232 million contract to develop signals intelligence and electronic warfare systems for the U.S. Army. SAIC was awarded the contract under the Department of Defense Information Analysis Center’s multiple-award contract vehicle.

Under the five-year contract, SAIC will identify gaps, vulnerabilities, and threats and recommend mitigation strategies and solutions in various intelligence disciplines.

On April 29, SAIC was awarded a $494 million contract by NASA to enable safe and reliable exploration of space through the Safety and Mission Assurance Engineering Contract III program. SAIC will advance the NASA programs in deep space exploration and human space flight.

Stable Financials

For the first quarter that ended May 3, 2024, SAIC reported revenues of $1.85 billion, with 0.4% organic growth. Its adjusted operating income for the quarter was $159 million. The company’s net income and adjusted EPS came in at $77 million and $1.92 for the quarter, respectively.

Furthermore, net cash provided by operating activities increased 20% from the year-ago value to $98 million. As of May 3, 2024, the company’s current liabilities decreased to $5.25 billion versus $5.31 billion as of February 2, 2024.

Impressive Historical Growth

SAIC’s revenue improved at a CAGR of 1.8% over the past three years, while its EBITDA improved at a CAGR of 2.5%. Its EBIT increased at a CAGR of 5.3% over the same period, while the company’s net income and EPS grew at respective CAGRs of 31.7% and 35.6% over the same time frame.

Also, the company’s normalized net income increased at a CAGR of 7.3% over the same timeframe.

Favorable Analyst Estimates

Analysts expect SAIC’s revenue for the third quarter (ending October 2024) to come in at $1.96 billion, indicating an increase of 3.6% year-over-year and the consensus EPS estimate is $1.93 for the same period. Moreover, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.

For the fiscal year ending January 2025, the company’s EPS is anticipated to grow 2.6% year-over-year to $8.09, while its revenue is expected to increase marginally year-over-year to $7.45 billion. In addition, Street expects its revenue and EPS for the fiscal year 2026 to grow 3% and 11.1% from the prior year to $7.67 billion and $8.98, respectively.

High Profitability

SAIC’s trailing-12-month net income margin of 6.41% is 6.2% higher than the 6.03% industry average. Its trailing-12-month ROCE of 27.42% is significantly higher than the industry average of 12.35%. Likewise, the stock’s trailing-12-month asset turnover ratio of 1.37x is 73.9% higher than the industry average of 0.79x.

Furthermore, the stock’s trailing-12-month ROTC and ROTA of 7.87% and 8.98% are higher than the 7.21% and 4.90% industry average, respectively.

Lower Valuation

In terms of forward non-GAAP P/E, SAIC is currently trading at 14.69x, 21.7% lower than the industry average of 18.75x. Likewise, the stock’s forward EV/Sales and Price/Sales of 1.11x and 0.82x are considerably lower than the industry average of 1.82x and 1.49x, respectively.

Additionally, the stock’s forward EV/EBITDA of 11.92x is 5.9% lower than the industry average of 11.26x.

POWR Ratings Reflect Promise

SAIC’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different 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 B grade for Value, consistent with its lower-than-industry valuation.

SAIC is ranked #21 among the 79 stocks in the Technology - Services industry.

Beyond what I have stated above, we have also given SAIC grades for Growth, Stability, Sentiment, Momentum, and Quality. Get access to all the SAIC ratings here.

Bottom Line

SAIC reported solid financial results in the last reported quarter. The company has a strong presence in the government sector, especially in defense, civil, and intelligence markets, and it continues to secure significant contracts with major organizations, which provides a stable stream of revenue.

Also, a diversified portfolio of services and solutions, strategic acquisitions to expand its capabilities and market reach, and technological advancements contribute to the company’s ongoing growth in the competitive market. Given strong financials, accelerating profitability, and robust growth outlook, it could be wise to invest in this stock.

How Does Science Applications International Corporation (SAIC) Stack Up Against Its Peers?

While SAIC has an overall POWR Rating of B, investors could also check out these other stocks within the Technology - Services industry with A (Strong Buy) or B (Buy) ratings: Dropbox, Inc. (DBX), Box, Inc. (BOX), and Leidos Holdings, Inc. (LDOS).

For exploring more A and B-rated tech stocks, click here.

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SAIC shares were trading at $118.39 per share on Tuesday morning, down $0.42 (-0.35%). Year-to-date, SAIC has declined -4.21%, versus a 11.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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