CACI Int'l Keeps a Buy Rating

CACI International, Inc. (CAI) posted strong revenue of $655 million in Q4:FY08, up 25.9% y/y and up 3.3% quarter over quarter [q/q]. The revenue growth was primarily driven by organic growth of 12.3%, specifically in the intelligence business, which was up 53.3% year over year [y/y].

The war on terrorism is a major priority for the federal government. Moreover, CAI provides the critical IT infrastructure for the DoD [Department of Defense] and the Department of Homeland Security. It continues to make acquisitions to bolster its expertise in these critical areas. Ongoing diversion of funds to Iraq, uncertainty around the timing of FY2008 defense and civilian budgets, and a tight labor market continue to pressure CACI's business momentum at the current time.

We believe the current turn around in growth relates to management’s recent strategic measures with an ongoing effort to improve gross margins by increasing the amount of direct labor content portion of revenues. However, sub-contractor content on some of its key revenue generating contracts continues to impact profitability and earnings - these metrics have lagged in comparison to top-line growth.

While CAI continues to expand on its initiatives to improve profitability by increasing its direct labor content on current and new programs, these initiatives will take time to make an impact. However, we consider defense IT contractors good investment vehicles to participate in defense, as well as other robust areas of federal spending. The management believes that the company’s operating margin is stabilizing and expects it to increase to 8% over the next two years from 7.1% in the reported quarter.

For fiscal 2009, management expects revenues to come around $2,550-$2,650 million. Operating margin is anticipated around 6.6%-6.8%. EPS is estimated around $2.90-$3.10. We have adjusted our FY 2009 revenue/EPS estimates accordingly and maintain our Buy rating with a target price of $55. Our target price implies a P/E multiple of 18x when applied to our 2009 EPS estimate, in line with the median multiple for the industry.

Read the full analyst report on CAI

Read the full analyst report on CAI