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SAIC (SAIC) Up 0.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for SAIC (SAIC - Free Report) . Shares have added about 0.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SAIC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Science Applications Reports Q4 Results

Science Applications reported fourth-quarter fiscal 2019 earnings of $1.17 per share, which beat the Zacks Consensus Estimate of 89 cents but declined 15% year over year.

Revenues jumped 6% from the year-ago quarter to $1.19 billion and outpaced the Zacks Consensus Estimate of $1.18 billion.

The increase in top line was driven by the acquisition of Engility, which contributed $98 million. Further, new contracts supporting IT modernization contributed $40 million to total revenues.

However, excluding the acquisition and the impact of the partial government shutdown, revenues declined 1.9% year over year.

Volume decline in fixed price vehicle production in the platform integration portfolio and lower volume in the supply chain portfolio due to non-recurring material buys in the year-ago quarter were overhangs on the top line.

Quarter Details

Net bookings for the quarter were approximately $0.9 billion as a result of contract award activities, reflecting a book-to-bill ratio of approximately 0.8.

SAIC’s estimated backlog of signed business orders was approximately $13.8 billion of which $2.8 billion was funded.

Adjusted operating margin expanded 20 basis points (bps) year over year to 6.6% in the reported quarter.

Adjusted EBITDA margin increased 60 bps to 8% backed by improved program performance and cost discipline.

Balance Sheet & Cash Flow

SAIC ended the quarter with cash and cash equivalents of $237 million, up from $193 million reported in the previous quarter.

Operating cash flow was $22 million, down from $86 million in the previous quarter due to payments for acquisition and integration costs.  Free cash flow was $18 million compared with $80 million in the preceding quarter.

During the quarter, SAIC deployed $24 million of capital, consisting of $8 million in plan share repurchases, $13 million in cash dividends and a $3-million term loan repayment.

Fiscal 2019 Highlights

In fiscal 2019, SAIC reported adjusted earnings of $5.04 per share, which increased 12% over fiscal 2018. Revenues grew 5% over the previous year to $4.57 billion. Adjusted EBITDA margin for the fiscal year increased 60 bps to 7.6%.

During fiscal 2019, the company paid a total cash dividend of $53 million and repurchased $40 million worth of its common stock. Since the inception of the share repurchase program in 2013, it repurchased $539 million worth of stocks.

Guidance

SAIC maintained revenue and adjusted EBITDA margin target presented by it at the investors’ conference held in January.

The company expects adjusted EBITDA margin to be lower in the first half and stronger in the second half of fiscal 2020.

Free cash flow is expected to be around $425 million in fiscal 2020, up from $400 million, reflecting the $25 million of deferred customer payments as a result of the partial government shutdown.

Its full-year effective tax rate is expected in the range 20% to 25%.

The board of directors increased their share repurchase authorization program by 4.6 million shares to 16.4 million shares, bringing the company’s total amount remaining for repurchase to 6.5 million shares. Additionally, the company announced that its quarterly dividend has been raised by 20% to 37 cents per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, SAIC has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

SAIC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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