SAIC (SAIC) Up 0.6% Since Last Earnings Report: Can It Continue?

It has been about a month since SAIC (SAIC) last reported earnings. Shares rose about 0.6% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SAIC facing a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Scientific Applications Reports Q4 Results

Science Applications reported fiscal 2019 fourth-quarter earnings of $1.17 per share, topping the Zacks Consensus Estimate of 89 cents, but declining 15% year-over-year.

Revenues rose 6% from the year-ago quarter to $1.19 billion and surpassed the Zacks Consensus Estimate of $1.18 billion.

The increase in revenue was driven by the acquisition of Engility, which contributed $98 million. Additionally, new contracts supporting IT modernization contributed $40 million in total revenue.

However, excluding the acquisition and the impact of the partial government shutdown, revenue declined 1.9% year over year.

The decline in fixed-price vehicle production volumes in the platform integration portfolio and lower volumes in the supply chain portfolio due to one-time material purchases in the prior-year quarter exceeded the cap.

Quarter details

Net bookings for the quarter were approximately $0.9 billion due to contracting activities, as reflected by a book-to-bill ratio of approximately 0.8.

SAIC’s estimated backlog of signed business orders was approximately $13.8 billion, of which $2.8 billion was funded.

Adjusted operating margin increased 20 basis points (bps) year-over-year to 6.6% in the reported quarter.

Adjusted EBITDA margin increased 60 basis points to 8%, driven by improved program performance and cost discipline.

Balance sheet and cash flow

SAIC ended the quarter with cash and cash equivalents of $237 million, compared to $193 million reported in the prior quarter.

Operating cash flow was $22 million, compared to $86 million in the prior quarter due to payments for acquisition and integration costs. Free cash flow was $18 million, compared to $80 million in the prior quarter.

During the quarter, SAIC committed $24 million of capital, consisting of $8 million in program share repurchases, $13 million in cash dividends and $3 million in repayments of the term loan facility.

Fiscal 2019 highlights

For fiscal 2019, SAIC reported adjusted earnings per share of $5.04, up 12% from fiscal 2018. Revenue increased 5% from the prior year to $4.57 billion. Adjusted EBITDA margin for the fiscal year increased 60 basis points to 7.6%.

In fiscal year 2019, the company paid a total cash dividend of $53 million and repurchased $40 million of common stock. Since the start of the share repurchase program in 2013, the company has repurchased shares worth USD 539 million.

Conductivity

SAIC maintained the revenue and adjusted EBITDA margin it presented at its January investor conference.

The company expects adjusted EBITDA margin to be lower in the first half of fiscal 2020 and higher in the second half of fiscal 2020.

Free cash flow is expected to be approximately $425 million in fiscal 2020, up from $400 million, reflecting $25 million in deferred customer payments as a result of the partial government shutdown.

The full-year effective tax rate is expected to be in the range of 20% to 25%.

The board of directors increased the stock repurchase authorization program by 4.6 million shares to 16.4 million shares, bringing the company’s total remaining repurchase amount to 6.5 million shares. Additionally, the company announced an increase in its quarterly dividend by 20% to 37 cents per share.

How have estimates changed since then?

The latest estimates have shown a downward trend over the past two months.

VGM results

At this point, SAIC’s average Growth Score is a C, but its Momentum Score is doing slightly better at a B. Plotting a somewhat similar path, the stock is given a C on the value side, placing it in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

SAIC carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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