SAIC (SAIC) Up 5.1% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for SAIC (SAIC). Shares have added about 5.1% in that time frame, outperforming 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.

SAIC Q3 Earnings Miss Mark, Rise Y/Y

Science Applications reported third-quarter fiscal 2020 earnings of $1.39 per share, missing the Zacks Consensus Estimate by 3.47%. However, the bottom line improved 2.96% year over year.

Moreover, revenues jumped 38% from the year-ago quarter to $1.6 billion but lagged the Zacks Consensus Estimate of $1.63 billion. Revenues realized from the acquisition of Engility drove the top line. Strong performance of the company’s contract portfolio is a tailwind.

However, adjusting for the impact of acquired revenues, the metric declined 1.5% due to acquisition related dis-synergies.

Quarter in Detail

Net bookings for the quarter were approximately $2.2 billion, reflecting a book-to-bill ratio of approximately 1.4%.

Science Applications’ estimated backlog of signed business deals was approximately $14.5 billion of which, $2.9 billion was funded.

Adjusted operating margin contracted 40 basis points (bps) year over year to 5.8% in the reported quarter.

Adjusted EBITDA of $135 million increased 38%. Adjusted EBITDA margin was flat at 8.3%.

Balance Sheet & Cash Flow

Science Applications ended the quarter with cash and cash equivalents of $162 million, down from $179 million reported in the previous quarter.

Operating cash flow was $116 million, up from $95 million in the sequential quarter. Free cash flow was $116 million compared with $90 million in the preceding quarter.

During the quarter, Science Applications deployed $24 million of capital, $21 million to cash dividends and $3 million to debt repayment.

Guidance

For fiscal 2020, the company expects second-half revenues to be consistent with the first-half figure of $3.6 billion.

For the full fiscal, adjusted EBITDA margin is likely to be at the mid-to-upper-end of the 8.2-8.4% range.

Free cash flow is expected to be at least $425 million for fiscal 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, SAIC has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, 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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