SAIC (NYSE:SAI) may have fallen off the earnings-outperformance horse in June, but you have to hand it to these folks. They got right back up and galloping just three months later, beating consensus estimates by three cents in September. The question today: Can SAIC stay in the saddle when it reports its fiscal Q3 2008 numbers just the other side of this weekend?

What analysts say:

  • Buy, sell, or waffle? Seventeen analysts take an exceedingly cautious view on SAIC. One says buy. One says sell. Everybody else is just holding.
  • Revenues. On average, the analysts expect to see 7% revenue growth to $2.29 billion.
  • Earnings. Profits are predicted to fall 12% to $0.23 per share.

What management says:
SAIC updated investors on its plans and progress in a presentation delivered in October, previewed in an 8-K filing with the SEC. Perhaps its most interesting aspect was the presentation's near-complete absence of actual news. As the company put it, it planned to "reaffirm its fiscal year 2008 financial guidance originally given on December 12, 2006 and subsequently reaffirmed on April 11, 2007, June 6, 2007 and September 6, 2007." It's hard to get more predictable than that -- not a boost or a walk-back on its promises for 12 months running!

Just to recap: The guidance in question calls for somewhere between $8.7 billion and $9 billion in sales, $0.83 to $0.88 per share in earnings from continuing operations, and somewhere north of $450 million in operating cash flow.

What management does:
For a company with such consistent expectations, though, SAIC's margins sure do bounce around a lot. While nothing much has changed at the gross margin level, and the margins are about where they were one year ago, operating margins are revolving around the 7% mark, and the net is all over the place -- verging on 6% one quarter, only to plunge below 5% the next.

For comparison, at the operating margin level, SAIC is about even with competitor Computer Sciences (NYSE:CSC), but significantly less profitable than, for example, IBM (NYSE:IBM), L-3 (NYSE:LLL), Lockheed (NYSE:LMT), or Accenture (NYSE:ACN).

Margins

4/06

7/06

10/06

1/07

4/07

7/07

Gross

12.9%

13.1%

13.5%

13.4%

13.2%

13.2%

Operating

6.5%

6.7%

7.1%

7.1%

6.9%

7%

Net

5.7%

5.8%

5.8%

4.7%

4.3%

4.6%

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:
In his September annual review of all Motley Fool Inside Value recommendations, newsletter lead analyst Philip Durell called SAIC "low risk" and "a great company to ride out any recession." Perversely basing his investment thesis on the firm's "sprawling complexity and internal competition," Philips argues that there are any number of ways that SAIC can improve its profits to more closely track the higher operating margins of its rival government contractors.

I sure hope he's right. At a P/E of about 20, and price-to-free cash flow ratio of around 17, SAIC looks a mite pricey for what analysts on average expect to be a mere 13% grower over the next half decade. If SAIC wants to reward investors, it'll need to pick up the pace a bit.

You've read what Rich thinks. You've read what Inside Value was saying about SAIC three months ago -- but what does our team of value-hunters think about SAIC today? Sign up for a free trial subscription to Inside Value now, and find out.

Fool contributor Rich Smith does not own shares of any company named above. Accenture is a Motley Fool Inside Value pick. The Motley Fool has a disclosure policy.