SAIC Bets on Defense Intelligence

09/14/2020 5:00 am EST


Taesik Yoon

Editor, Forbes Investor and Forbes Special Situation Survey

Science Applications International (SAIC) announced fiscal 2021 Q2 revenues of $1.764 billion; while this came in $31 million below the consensus forecast, the slight shortfall was entirely due to the negative impact from the COVID-19 pandemic, observes Taesik Yoon, editor Forbes Investor.

The company estimates that the pandemic shaved roughly $65 million off the top line.  Indeed, had it not been for this headwind, revenues would have comfortably exceeded expectations.

Moreover, even with these pandemic-related challenges, the top-line performance still represented solid year-over-year growth of 10.7% — boosted  $175 million in contributions from the recent acquisition of Unisys Federal, new contracts supporting the intelligence community and U.S. Air Force, and increased volume on existing programs.

And with gains related to the resolution of certain legal and other program matters, lower indirect costs, and a reduced share count also making up for higher interest expense, adjusted earnings climbed by an even larger 20.7% to $1.63 per share, which was 19 cents higher than anticipated.

Due to SAIC’s expectation that the negative impact on its top line from the reduced volume in its supply chain business, lower FAA training service revenues, and uncertain profit recovery on ready-state labor caused by the pandemic will widen to $152 million in the second half of fiscal 2021 from $98 million over the first two quarters, the company lowered the top end of its full-year revenue guidance by $100 million to a new range of $7.1-7.2 billion.

The $3.63 billion in revenue implied by the midpoint of this updated forecast for the remainder of the year falls slightly short of the $3.69 billion analysts were anticipating.

Similarly, while SAIC kept its outlook for adjusted earnings unchanged at $5.80-6.10 per share, this suggests $2.81-3.11 per share in the second half after you account for the bottom-line beat in Q2, which is also below the $3.31 consensus target and reflects the greater pressure on profits that the pandemic is projected to have over the final two quarters.

Yet this guidance still indicates revenue growth of roughly 14% and earnings growth of as much as 5% in the second half from a year ago. That remains a much better forecast than what most companies offered up in this past earnings season.

More importantly, the pandemic has not caused any similar slowdown in order activity, which was a clear bright spot. Specifically, SAIC generated $4.6 billion in net new bookings, resulting in a very health book-to-bill ratio of 2.6.

This drove the company’s estimated backlog of signed business orders up by $2.8 billion sequentially to $19.4 billion at the end of Q2.

The stronger growth this should help support slightly longer out may be why SAIC’s stock held up relatively well amid the sharp sell-off in equities today.  It’s also why we remain optimistic in its ability to continue outperforming the overall market over the balance of the year.

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