Demand for CACI Will Remain

We maintain our Buy rating on CACI International, Inc. (CAI) after the company posted strong revenue of $634 million in Q3:FY08, up 34.1% year-over-year and up 9.8% quarter-over-quarter. EPS of $0.73 surpassed our estimate of $0.68.

The revenue growth was primarily driven by organic growth of 20%, specifically in the intelligence business, which was up 71% year-over-year. The management believes that the company’s operating margin is stabilizing and expects it to increase to 8% over the next two years from 6.9% in the reported quarter. CAI raised its FY2008 revenue guidance from a range of $2.30-$2.40 billion to a range of $2.375-$2.425 billion while EPS should come around $2.65-$2.75. We have adjusted our FY2008/2009 revenue/EPS estimates accordingly with a target price of $55.

The management expects to generate revenues of $5 billion by 2012. The recently announced GSA Alliant contract is a 10-year Multiple Award/Indefinite Delivery, Indefinite Quantity contract with a $50 billion ceiling value. Under the deal, CACI is now qualified to compete for individual government information technology projects, which could include writing computer software and building computer networks.

Finally, although there is an uncertainty related to funding in the short term, we think the trend toward outsourcing by the federal government to modernize mission-critical information systems remains intact.

Read the full analyst report on CAI