Will Contract Wins Make SAIC Earnings Grow?

SAIC (NYSE: SAI  ) will release its quarterly report on Wednesday, and the company has done a good job of getting new business from government contracts despite sequestration and other constraints on the federal budget. Yet even though the company concentrates on the very important and growing area of cybersecurity, SAIC earnings aren't expected to provide the growth that investors want to see.

The threat level from cyber-attacks has only risen in recent years, as hackers target both government and private-industry websites and networks to try to capture critical information and cause mayhem and potential devastation. Yet even as SAIC has benefited from greater spending in the area, competitors have also flooded into the space to try to take their fair share of the growing pie. Let's take an early look at what's been happening with SAIC over the past quarter and what we're likely to see in its report.

Stats on SAIC

Analyst EPS Estimate

$0.22

Change From Year-Ago EPS

(31%)

Revenue Estimate

$2.55 billion

Change From Year-Ago Revenue

(10.5%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Will SAIC earnings start rising again?
Analysts have marked down their views on SAIC earnings in recent months, cutting July quarter estimates by $0.06 per share and their full-year projections by almost as much. The stock, though, has done fairly well, returning almost 8% since late May when you include the impact of a $1 special dividend.

Government budget cuts have definitely taken their toll on SAIC. In the company's most recent quarterly report, SAIC saw earnings fall 31%, even though a 2% drop in revenue was less dramatic than most investors had expected. CEO John Jumper specifically cited automatic spending cuts under sequestration as motivating much of the drop in profits.

Yet SAIC has still managed to bring in a consistent stream of new contracts. Just last week, the company won a big NASA contract worth up to $1.76 billion to support health-related services support human spaceflight programs. A number of other contracts covering everything from drone management to logistics support involve more modest sums but still made significant contributions to revenue during the quarter.

One big opportunity could come from a $6 billion project for the Department of Homeland Security. SAIC will have the right to compete against rival ManTech International (NASDAQ: MANT  ) as well as General Dynamics (NYSE: GD  ) , Lockheed Martin (NYSE: LMT  ) , and other large contractors to bid on individual task orders under the larger project.

In the SAIC earnings report, watch for a status report on the company's planned breakup into two separate companies. With SAIC having acquired office space for its Leidos spinoff earlier this month, investors expect the company to formalize its split by the end of the year. Once the breakup occurs, both companies will arguably be in a better position to pursue their respective focus areas, with Leidos taking on the bulk of its national security work while SAIC continues to provide information technology and related services.

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