Say What, SAIC?

For the second time in its history, SAIC (NYSE: SAI  ) reported earnings as a public company last week. With the stock up 7% in the days since, it appears that investors liked what they saw:

  • Revenues rose 7% for the fourth quarter and 10% for the year.
  • Operating income grew 10% for the quarter and 19% for the year.
  • Net income, bitten hard by higher taxes this year, fell 44% for the quarter and 58% for the year.

The rote recitation of the headline numbers out of the way, I want to use the rest of today's column to explore the workings of this government contractor in a bit more detail. It's been public for only a few months, after all. So even though SAIC has been in business for decades, it's only now starting to register on many investors' radars. It will probably take a while for us to get to know it really well. In furtherance of that goal, today we're going to talk a little bit about backlog.

SAIC defines backlog as "signed business orders," or contractual obligations that its customers -- primarily the U.S. government -- have to pay for its goods and services. Backlog is an important metric because, theoretically at least, it shows that the firm's revenue streams several quarters, or years, down the road. The bigger the number, the more confidence an investor has that the company will remain in business and be able to generate profits. Boeing's (NYSE: BA  ) $250 billion in backlog, for example, represents more than four years' worth of future revenues already "in the bag."

Backlog comes in two flavors. Funded contracts are those for which Congress has appropriated funds; unfunded contracts are those for which it hasn't. Logically, the funded part is the most important. The unfunded part, in contrast, represents probable future revenues -- but revenues that may never materialize if Congress doesn't authorize their payment.

SAIC's $15.1 billion in backlog is composed of $4.8 billion funded and $10.3 billion not funded, meaning that only about 32% of its backlog is truly "in the bag." How does that compare with its rivals in this industry? I did some digging in the SEC filings, and here's what I found:

  • General Dynamics (NYSE: GD  ) is best in class, with 75% of its $43.7 billion in backlog funded.
  • Raytheon (NYSE: RTN  ) has funding for 54% of its $33.8 billion.
  • Northrop Grumman (NYSE: NOC  ) -- an even 50% out of $61 billion.
  • ManTech (Nasdaq: MANT  ) -- 22% of $2.87 billion.
  • DynCorp (NYSE: DCP  ) -- just 21% of $5.8 billion

Conclusion: SAIC isn't the worst in this regard, but its revenue stream is far from the most secure among government contractors. Now that we've got a starting point, let's watch over future quarters to see whether it can move up the rankings.

Want to learn more about SAIC? Read:

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Fool contributor Rich Smith does not own shares of any company named above.


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