It has been about a month since the last earnings report for SAIC (SAIC - Free Report) . Shares have lost about 6.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is SAIC due for a breakout? 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 catalysts.
SAIC Q2 Earnings Beat Mark
Science Applications reported second-quarter fiscal 2020 earnings of $1.35 per share, beating the Zacks Consensus Estimate of $1.27. The bottom line also improved 11% year over year.
Moreover, revenues jumped 43% from the year-ago quarter to $1.59 billion. Revenues realized from the acquisition of Engility drove the top-line growth.
However, excluding Engility, revenues were flat year over year. The figure also missed the Zacks Consensus Estimate of $1.64 billion. The company witnessed some delays in contract awards due to protests. Moreover, unmaterialized new businesses were also an overhang on the top line.
Nonetheless, adjusting for nearly $30 million in dissynergies due to elimination of prime sub-revenues, lower revenues on cost, and lower contract revenues due to cost synergy achievement, the company achieved 2% organic growth year over year.
Quarter in Detail
Net bookings for the quarter were approximately $1.9 billion, excluding $400 million of single-award IDIQ value, as a result of contract award activities, reflecting a book-to-bill ratio of approximately 1.2.
Science Applications’ estimated backlog of signed business orders was approximately $13.9 billion of which, $2.6 billion was funded.
Adjusted operating margin contracted 30 basis points (bps) year over year to 6.3% in the reported quarter.
Adjusted EBITDA margin expanded 90 bps to 8.4%, backed by an improved program performance, cost discipline and higher margin portfolio of Engility. The figure does not include $6 million of integration related costs in the quarter.
Balance Sheet & Cash Flow
Science Applications ended the quarter with cash and cash equivalents of $179 million, up from $151 million reported in the previous quarter.
Operating cash flow was $95 million, down from $178 million in the previous quarter. Free cash flow was $90 million compared with $169 million in the preceding quarter. The second quarter is usually the lowest cash generating quarter for the year due to additional payroll cycles compared to the other quarters, and two income tax payments.
Nonetheless, significant cash collections and reduced working capital were positives.
During the quarter, Science Applications deployed $156 million of capital, consisting of $133 million in planned share repurchases, $21 million in cash dividends and a $2 million in debt repayment.
Science Applications maintained revenue target per its report presented at the investors’ conference held in January.
For the full fiscal year, adjusted EBITDA margin is expected to expand 80 bps year over year.
Free cash flow is still expected to be around $425 million for fiscal 2020.
The company’s full-year effective tax rate is forecast in the 22-24% range.
The company expects headwinds of nearly $100 million in dissynergies due to elimination of prime sub-revenues, lower revenues on cost, and fall in contract revenues due to cost synergy achievement during the fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, SAIC has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, SAIC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.