Foolish Forecast: Will DynCorp Deliver?

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After beating analyst estimates four quarters straight, defense contractor DynCorp (NYSE: DCP) finally stumbled last quarter. Stumbled hard, falling 25% short of Wall Street's expectations. Can it pick itself up, dust itself off, and get back on the outperformance horse? We'll find out Thursday morning, when DynCorp makes its final earnings report for fiscal 2008.

What analysts say:

• Buy, sell, or waffle? Half a dozen analysts track DynCorp. Their ratings are: buy, hold, sell; 3-2-1.
• Revenue. On average, they're looking for quarterly sales to rise 6.5% to $588.1 million.
• Earnings. Profits are predicted to shed a penny and come in at $0.32 per share.

What management says:
Big news at DynCorp this quarter: The company has a new CEO. DynCorp's big boss is William L. Ballhaus, poached from Euro-rival BAE Systems. Further changes are found down the management tree, where DynCorp has reshuffled its divisions so that it will now report results in three parts: International Security Services, Logistics and Construction Management, and Maintenance and Technical Support Services. Each will be led by existing DynCorp officers.

What management does:
Why the reshuffle? I'm really not sure. Generally speaking, things have been going well at DynCorp, with rolling gross, operating, and net profit margins all trending northwards. Sure, the company isn't as profitable as the giants of the industry -- it gets only about two-thirds the operating margin of L-3 (NYSE: LLL) or Lockheed Martin (NYSE: LMT).

But its 6.9% operating margin doesn't compare too badly to companies in its own weight class. ManTech (Nasdaq: MANT) and SRA International (NYSE: SRX) only beat it by about a percentage point, SAIC (NYSE: SAI) by half a point, and DynCorp actually edges out CACI (NYSE: CAI) in the rankings.

Margins	9/06	12/06	3/07	6/07	9/07	12/07
Gross	12.4%	13.2%	12.7%	12.7%	13.4%	13.5%
Operating	4.9%	5.4%	5.8%	5.9%	7.0%	6.9%
Net	0.2%	0.7%	1.3%	1.9%	2.7%	2.7%

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

One Fool says:
Probably the best news for DynCorp, though, is that it's finally come to an amicable settlement of its differences with L-3 over the long-disputed Army translation contract. As you may recall, L-3 had struggled for well over a year to win back a multibillion-dollar contract that it lost to L- 3 back in 2006. Every time DynCorp won a round of the appeals process, L-3 just appealed again -- and every time it did so, the Army allowed L-3 to continue working on the contract, and booking revenues, pending decision.

Well, in March, DynCorp finally got tired of the runaround and paraphrased the old saw: "If you can beat 'em, beat 'em again, yet still find yourself somehow not beating 'em, join 'em." Without going into too much detail, the long-and-short of the denouement to this story is that DynCorp gets to keep the contract and hired L-3 to do the work. So everybody gets a piece of the $4.6 billion pie and goes home satisfied.

Here's hoping DynCorp makes investors feel similarly fat and happy on Thursday.

Further Foolishness on DynCorp:

• Shrink! The Latest Buyback Announcements
• DynCorp Delights
• Foolish Forecast: Divining DynCorp