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We retain our Neutral recommendation on CACI International, Inc. (CACI - Analyst Report). Even with major contract wins accruing during the last quarter, the company was unable to placate us from fears emanating from issues such as outlook decline and over-dependence on the Department of Defense (DoD).

The company has been on a spree of winning contracts perennially over the last few months. These amounted to nearly $547 million during the third quarter of fiscal 2012. Not only do these add to revenue prospects of the company but also help in building effective relationships ossified with multi-year projects.

CACI International’s expertise in making strategic acquisitions has proved effectively fruitful over time. Even though management did not indulge in acquiring any businesses of late, the company reported generating $28 million revenues accrued from acquired businesses in its third fiscal quarter.

Cyber threats have been looming large over quite sometime due to which the demand for solutions and protective devices have surged comprehensively too. This growing menace has fuelled the growth prospects for CACI International in the industry making it an attractive option for all organizations seeking such services. The ongoing relationship it retains with the DoD is its biggest panegyric in this regard.

This, however, has an unfavorable side to the picture. A major budget cut is expected to occur in 2013 by the U.S. Congress. With CACI International deriving almost 77.5% and 17.2% of revenues, from the DoD and Federal Civilian Agencies, respectively, in the last fiscal quarter declared, the adverse outcome of budget cuts might deteriorate gains comprehensively as the company moves ahead in the upcoming year. Hence, it would be wise for CACI to mitigate its dependence on Government contracts as far as practicable in order to steer away from fiscal pressures on its performance.

Management has already reported a decline in revenue projections for full fiscal year 2012, dropping from an earlier expectation of $3,850 million - $4,050 million to now fall within $3,730 million - $3,830 million. Such a realistic stance can aver that management is not looking too hopeful at present about its final quarter yields of fiscal 2012.

One aspect which continually proves ominous to the company is the fierce competition it faces in the industry. So, a wary eye needs to be kept for any form of advances made by big players such as Syntel, Inc. (SYNT - Snapshot Report) and Ebix Inc. (EBIX).

Hence, judging by the precarious climate the company is experiencing, we find it wise to maintain a sideline stance for the time being. In the short run, we have a Zacks #3 Rank on the stock which translates into a short-term ‘Hold’ rating.

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