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Science Applications International Corporation (SAIC - Free Report) will report fiscal second-quarter 2018 earnings on Sep 7 after the bell.

The company has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates. We don’t recommend Sell-rated stocks (Zacks Rank #4 or #5) going into the earnings announcement.

However, Science Applications’ surprise history has been quite impressive. It has beaten estimates in three of the last four quarters and matched estimates on one occasion.

The company has lost 12.2% of its value year to date against 24.4% growth of its industry.

What Happened in the First Quarter?

Adjusted earnings of $1.08 per share increased 35% year over year and also beat the Zacks Consensus Estimate. However, revenues decreased 9% from the year-ago quarter to $1.10 billion and missed the Zacks Consensus Estimate of $1.11 billion. Customer budget constraints and contract losses were major reasons for the not-so-impressive performance.

What We Are Watching?

Science Applications’ increased expenditure and investments in ongoing platform integration programs weigh on its margins. However, the company’s continued focus on operational enhancements and orderly capital deployment are expected to boost margins. This along with improving market dynamics are expected to drive growth.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Price and EPS Surprise

For the fiscal second quarter, management expects EBITDA margin to be 10 bps lower than the year-ago quarter, impacted by platform integration programs. The company expects fiscal 2018 revenue run rate to be almost in line with fiscal 2017.The company positively revised free cash flow estimates for fiscal 2018 to $240 million, primarily based on excess tax benefits on stock-based compensation.

Science Applications expects to pay dividends worth $55 million and make total debt repayments of approximately $25 million. The remainder of the cash in excess of $150 million will be used to buy back shares and for acquisitions.

Stocks that Warrant Look

Here are some stocks that you may want to consider as our model shows these have the right combination of elements to deliver a positive earnings surprise:

Applied Materials, Inc. (AMAT - Free Report) with an Earnings ESP of +2.34% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

InterDigital (IDCC - Free Report) with an Earnings ESP of +10.45% and a Zacks Rank #2.

CACI International (CACI - Free Report) with an Earnings ESP of +1.09% and a Zacks Rank #2.

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