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On Jan 15, Zacks Investment Research upgraded technical services provider CACI International (CACI - Analyst Report) to a Zacks Rank #2 (Buy) largely on the back of strong long-term fundamentals.

CACI’s share price has steadily been on an uptrend since Mar 2013. The stock hit a 52-week high of $79.44 on Jan 14, 2014, before closing the trading session a notch lower at $78.40 for a healthy year-over-year return of 38.2%. Despite its strong price appreciation, CACI still has the wherewithal for the stock to climb up. The stock is currently trading at a forward P/E of 13.4x and has long-term earnings growth expectation of 14.0%.

Why the Upgrade?

Strategic acquisitions, new business initiatives and operational excellence are the primary driving factors for CACI.

On Nov 15, 2013, CACI closed the $820 million acquisition of Six3 Systems, Inc. in cash, which is in one of the largest transactions of its kind in history. With approximately 1,600 employees and expected revenues of $470 million in 2013, the acquisition expands CACI’s addressable market by approximately $15 billion. Furthermore, Six3 Systems adds distinctive cyberspace, C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance), and intelligence capabilities to CACI solutions and services and augments its customer base. CACI expects the acquisition to be at least 5% and 10% accretive to GAAP and adjusted earnings, respectively, for calendar year 2014.

The company has a large pipeline of new projects and continues to win deals at regular intervals. These back-to-back contract wins are the key catalysts for the company. Furthermore, having the government as a big client lends stability to the business and moderates fluctuations in revenues.

In addition, CACI intends to drive operational excellence by intensively focusing on its organic and inorganic growth strategy and strengthening its existing customer relationships while building new ones.

Estimate Revisions

Over the last 7 days, the earnings estimates for CACI did not show any upward or downward revision for the current quarter and fiscal year. Despite the lack of estimate revisions, we anticipate an uptrend for the stock backed by its strong growth potential.

Other Stocks to Consider

Other players in the industry worth reckoning include Lionbridge Technologies Inc. (LIOX - Snapshot Report), Virtusa Corp. (VRTU - Snapshot Report) and Huron Consulting Group Inc. (HURN - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

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