Defense tech specialist Science Applications International (SAIC 0.27%) missed quarterly expectations due to expenses tied to its CEO transition. Investors are taking a harsh view, sending SAIC shares down 10% as of 10:30 ET on Monday.
A bottom-line miss despite strong sales
SAIC provides IT, tech, and engineering services to a range of government and defense customers. The company earned $1.43 per share in its fiscal fourth quarter, ending Feb. 2, which fell short of Wall Street's $1.47 consensus. Revenue came in at $1.74 billion, beating the $1.64 billion estimate, but higher costs associated with an acceleration of stock-based compensation and reorganization expenses weighed on the bottom line.
Adjusted margin based on earnings before interest, taxes, depreciation, and amortization (EBITDA) fell to 7.3% in the quarter, below the 8.4% estimate and last quarter's 9.4% margin. The company's new business booked in the quarter came in at 0.81 times sales, which was slightly below what analysts had hoped for.
Last spring, SAIC announced that then-CEO Nazzic S. Keene would retire and be replaced by Toni Townes-Whitley. That transition occurred in October. Whitley issued a statement saying that she sees significant potential for growth.
"As we embark on the next phase of our corporate strategy to become the premier mission integrator in our market, I am confident that the investments we are making in fiscal year 2025 will accelerate our ability to drive value for all our stakeholders," Townes-Whitley said.
Is SAIC a buy after its earnings miss?
Investors are taking a glass-half-empty view, but there is reason for long-term holders to continue to believe in SAIC. The company raised its full-year fiscal 2025 revenue guidance to a range of $7.35 billion to $7.5 billion, up from prior guidance of $7.25 billion to $7.4 billion, and strong relative to the $7.37 billion consensus.
The company also boosted fiscal 2026 revenue guidance by about $100 million and sees free cash flow in both fiscal 2025 and 2026 accelerating ahead of previous estimates.
In the current defense environment, there are a lot of opportunities for IT-focused integrators. SAIC is set up well to capture enough of those opportunities to fuel growth. Long-term investors should consider Monday's price drop as a potential buying opportunity.
