Government contractor Science Applications International (SAIC 0.86%) reported disappointing quarterly results, weighed down by the government's efficiency drive. Investors were disappointed, sending SAIC shares down 13% for the day.
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Washington headwinds weigh on results
SAIC is one of the largest so-called "Beltway Bandits" -- defense contractors focused on providing IT and other services to military, intelligence, and civil government customers. The company earned $1.92 per share in its fiscal first quarter of 2026 on revenue of $1.88 billion, compared to analyst expectations for $2.12 per share in earnings on sales of $1.87 billion.
Net income was down 12% year over year to $68 million, and SAIC's operating margin fell by 70 basis points to 6.4%.
On a call with investors, CEO Toni Townes-Whitley said that the business has been caught up in the efforts of the newly formed Department of Government Efficiency (DOGE) to scrutinize spending. Townes-Whitley said:
While the operating environment has stabilized in recent months and recent budget developments provide improved clarity around future spending, we continue to see higher rates of turnover among our customers, contributing to procurement delays and award timelines moving to the right. We expect conditions to remain very fluid over the next few months as budget negotiations play out and agencies continue to implement the strategic priorities of this administration.
Is SAIC stock a buy?
The good news is the company expects DOGE to impact full-year revenue by less than 1%. The company booked $2.4 billion in future business in the quarter, which is 1.3 times the revenue it brought in, an indication of better times ahead. And SAIC reiterated its full-year guidance, implying that the company sees opportunities to make back the profit miss in the quarters to come.
The question is how soon those better times will arrive. Townes-Whitley and other executives have said the DOGE impact so far, is more to delay procurements than to tear up contracts. But with a Congressional budget battle brewing, there is unlikely to be clarity about future spending anytime soon.
With Monday's fall, SAIC is trading at just 10 times future earnings. That's nearing a recent historical low. It's possible we haven't bottomed out yet, but for long-term-focused investors, SAIC has reached a level where it is worth adding to the watch list.
