Foolish Forecast: Calculating CACI

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Two times straight, IT specialist CACI (NYSE: CAI) has pulled off the neat trick of nailing Wall Street's exact estimates for earnings. Will Wednesday afternoon's fiscal year-end and Q4 results make it three in a row?

What analysts say:

• Buy, sell, or waffle? Seventeen analysts follow CACI, giving it three buy ratings, a dozen holds, and a pair of sells.
• Revenues. On average, they expect to see flat quarterly sales of about $479.4 million.
• Earnings. Profits are predicted to fall 11% to $0.63 per share.

What management says:
C-level changes were announced at CACI in June. Effective July 1, Dr. Jack London has vacated the CEO's chair (while remaining chairman of the board). He's replaced by Paul Cofoni, the former president of U.S. operations, who came to CACI by way of Computer Sciences (NYSE: CSC) after a 17-year tenure at General Dynamics (NYSE: GD).

In other June news, CACI updated us on its plans for the current fiscal year (i.e. the one we're in now, as opposed to the one to be reported upon on Wednesday.) In fiscal 2008, CACI intends to book approximately $2.1 billion in revenue, earn between $2.50 and $2.80 per share, and generate more than $150 million in operating cash flow.

What management does:
CACI has experienced significant margin pressure over the last 18 months, with gross, operating, and net profits all falling significantly. That said, the firm still achieves significantly higher operating margins than do rivals such as Computer Sciences, Perot Systems (NYSE: PER), SAIC (NYSE: SAI), and in particular DynCorp (NYSE: DCP). It lags L-3 (NYSE: LLL), however.

Margins	12/05	3/06	6/06	9/06	12/06	3/07
Gross	36%	35.6%	35.3%	35.3%	35.1%	34.9%
Operating	9.7%	9.6%	9.4%	9.2%	8.8%	8.5%
Net	5%	5%	4.8%	4.7%	4.5%	4.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
The trend in margins shows little sign of abating. According to CACI's updated financial guidance, we can expect "continued margin pressure during FY08" thanks to the "loss of two high-margin, recompeted contracts in the first half of FY07," and the "prioritization of funding to combat zone warfighters, which has slowed spending on new programs and increased the importance of winning recompeted contracts and increasing market share."

Speaking of which, CACI made it clear that one way it aims to increase market share is by buying growth. The firm will be targeting companies in the "defense, intelligence, and homeland security areas," sporting "high margins and strong growth." Sounds like CACI has just given us a roadmap leading to potential acquisition targets. If you see one, drop me a note?

Fool contributor Rich Smith does not own shares of any company named above. Why do we tell you this? Consult The Motley Fool's disclosure policy to find out.