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Science Applications International (SAIC) Post-Earnings Analysis – Time to Buy, Hold, or Sell?

Science Applications International Corporation (SAIC) reported better-than-expected earnings and revenue for the third quarter. Moreover, the company raised its revenue and earnings outlook for fiscal 2024. Is it time to buy, hold, or avoid the stock now? Read on to learn my view…

Science Applications International Corporation (SAIC) reported its third-quarter results on December 4. The company comfortably surpassed the consensus EPS and revenue estimates. In this piece, I have discussed why it could be prudent to buy the stock now.

For the quarter, SAIC’s EPS was 34.7% above the consensus estimate, while its revenue was 5.8% higher than analyst estimates. The company continued its stellar earnings history, beating the consensus EPS estimate in each of the trailing four quarters.

SAIC’s CEO, Toni Townes-Whitley, said, “It is an honor to lead SAIC at a time of such convergence in protecting this country’s national security interests, embracing the ongoing acceleration of technological innovation, and charting this company’s course for continued success in the future.”

“To ensure our leadership in the market, SAIC is focused on strategic pivots across four key dimensions of the business: innovation & solutions, go-to-market, culture, and brand. As we move out on this strategy, I’m encouraged by some early signs of success and look forward to sharing our progress against milestones in the coming quarters and years.”

“We believe our financial results in the third quarter demonstrate that we are entering the next phase of our strategy from a position of strength,” he added.

SAIC’s revenue for the third quarter declined year-over-year. The decline could be attributed to the logistics and supply chain management business (Supply Chain Business) sale, deconsolidation of the Forfeiture Support Associates J.V. (FSA), and contract completions. Adjusting for the sale of the Supply Chain Business and the deconsolidation of FSA, revenues rose 10.6% over the prior-year quarter.

During the third quarter, its net bookings were approximately $2.5 billion, reflecting a book-to-bill ratio of 1.3. The company’s estimated backlog at the end of the third quarter was about $23.10 billion. Out of the total backlog amount, roughly $4 billion was funded.

During the quarter, SAIC was awarded a seven-year contract worth $575 million by the United States Space Force to support its Ground Based Radar Maintenance and Sustainment Services (GMASS).

Also, the company was awarded a contract worth $375 million to continue providing Command, Control, Communications, Computers (C4) Intelligence, Surveillance and Reconnaissance (ISR) fielding and integration on land-based vehicle platforms in support of the Naval Information Warfare Center – Atlantic (NIWC LANT).

The company also raised its guidance for fiscal 2024 revenue and adjusted EPS. SAIC now anticipates its revenue to come between $7.325 billion and $7.35 billion, compared to the previously projected range of $7.20 billion and $7.25 billion. Its adjusted EPS is projected to come between $7.70 and $7.90, compared to the previous expectations of between $7.20 and $7.40.

Its adjusted EBITDA margin is expected to be between 9.3% and 9.4%. Additionally, the company expects to generate free cash flow between $460 million and $480 million in fiscal 2024. Over the past six months, the stock has gained 28.4% and 18.8% year-to-date to close the last trading session at $131.75.

Here’s what could influence SAIC’s performance in the upcoming months:

Robust Financials

SAIC’s revenues for the third quarter ended November 3, 2023, came in at $1.90 billion. Its adjusted operating income rose 5.9% year-over-year to $144 million. The company’s adjusted EBITDA increased 4.7% year-over-year to $178 million. Its cash, cash equivalents, and restricted cash at the end of the period rose 416.1% year-over-year to $320 million.

In addition, its net income increased 16.3% year-over-year to $93 million. Also, its adjusted EPS came in at $2.27, representing an increase of 19.5% year-over-year.

Mixed Analyst Estimates

Analysts expect SAIC’s EPS for fiscal 2024 and 2025 to increase 4.6% and 0.9% year-over-year to $7.90 and $7.97, respectively. On the other hand, its fiscal 2024 and 2025 revenue is expected to decline 4.6% and 0.3% year-over-year to $7.35 billion and $7.33 billion, respectively.

Mixed Profitability

In terms of the trailing-12-month net income margin, SAIC’s 6.67% is 10% higher than the 6.07% industry average. Likewise, its 8.42% trailing-12-month levered FCF margin is 40.8% higher than the industry average of 5.98%. Furthermore, the stock’s 1.36x trailing-12-month asset turnover ratio is 71.2% higher than the industry average of 0.79x.

On the other hand, SAIC’s 11.75% trailing-12-month gross profit margin is 61.5% lower than the 30.49% industry average. Likewise, its 0.30% trailing-12-month Capex/Sales is 89.9% lower than the 2.97% industry average. Furthermore, the stock’s 12.23% trailing-12-month EBITDA is 11.1% lower than the industry average of 13.76%.

Discounted Valuation

In terms of forward non-GAAP P/E, SAIC’s 17.28x is 4.1% lower than the 18.02x industry average. Its 1.28x forward EV/Sales is 27.9% lower than the 1.77x industry average. Likewise, its 13.24x forward EV/EBIT is 16% lower than the 15.77x industry average.

Solid Historical Growth

SAIC’s revenue has grown at a 3.7% CAGR over the past three years and a 10.8% CAGR over the past five years. Its EBITDA has grown at a 16.2% CAGR over the past three years. Its net income and EPS have grown at 35.5% and 38.9% CAGRs over the past three years.

POWR Ratings Show Promise

SAIC has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 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 B grade for Value, consistent with its discounted valuation.

SAIC’s stock is trading above its 50-day and 200-day moving averages, justifying its B grade for Momentum.

SAIC is ranked #10 out of 76 stocks in the Technology – Services industry. Click here to access SAIC’s Growth, Stability, Sentiment, and Quality ratings.

Bottom Line

SAIC’s stock is trading above its 50-day and 200-day moving averages of $111.73 and $109.63, respectively, indicating an uptrend. Strong net bookings and new contract wins have boosted its revenue and earnings outlook for fiscal 2024.

Given its robust fundamentals, discounted valuation, and strong momentum, it could be wise to buy the stock now.

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

While SAIC has an overall grade of B, equating to a Buy rating, you may also check out these other A (Strong Buy) or B (Buy)-rated stocks within the Technology – Services industry: Teradata Corporation (TDC), LiveRamp Holdings, Inc. (RAMP), and RADCOM Ltd. (RDCM). To explore more Technology - Services stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

SAIC shares were trading at $132.19 per share on Wednesday morning, up $0.44 (+0.33%). Year-to-date, SAIC has gained 20.77%, versus a 21.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


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