Foolish Forecast: SAIC

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SAIC (NYSE: SAI) reports fiscal Q2 2009 earnings tomorrow afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

• Buy, sell, or waffle? Sixteen analysts follow SAIC. One-quarter of them think it's a buy. All the rest say to hold it.
• Revenues. On average, the analysts expect to see 10% revenue growth to $2.45 billion.
• Earnings. Profits are predicted to rise 8% to $0.26 per share.

What management says:
The big news at SAIC this quarter looks like the proverbial tempest in a teapot. When calculating taxes owed on profits from its sale of Telcordia Technologies in 2005, SAIC underpaid Uncle Sam. As a result,

1. Management must restate its financials all the way back through fiscal 2006.
2. Earnings will be reduced by $2 million in the current fiscal year, 2009, for interest owed on the overdue taxes.
3. Most importantly, the error has no effect on operating cash flow.

What management does:
Meanwhile, things continue to go swimmingly with SAIC's continuing operations. Both gross and operating margins have risen for three quarters straight.

Sure, SAIC isn't yet pulling down double-digit margins like rivals, L-3 (NYSE: LLL), Lockheed (NYSE: LMT), or Accenture (NYSE: ACN) -- but maybe that just gives management something to shoot for. Meanwhile, SAIC still handily bests CACI (NYSE: CAI) and Computer Sciences (NYSE: CSC) on this metric.

Margins	1/07	4/07	7/07	10/07	1/08	4/08
Gross	13.5%	13.3%	13.3%	13.6%	13.8%	13.9%
Operating	7.1%	7.0%	7.0%	7.3%	7.5%	7.6%
Net	4.9%	4.5%	4.7%	4.6%	4.6%	4.7%

All data courtesy of Capital IQ, a division of All 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:
After seeing how well first (fiscal) quarter 2009 turned out, management did an about-face on its guidance, and renewed its pledge to keep on expanding margins. We could well see operating margins hit 7.7% or more by year's end. Combined with 6% to 9% revenue growth, management expects this to yield EPS growth of as much as 18% (although the restatement could weigh on results).

Still, seeing as the stock sells for only 19 times earnings today, and is generating free cash flow approximately equal to net income, that's not a half-bad price -- if SAIC can maintain this rate of growth. Check back in later this week to see how well it's doing with that.

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