DE Shaw buys new position in SAIC

Market Realist

DE Shaw: New purchases in 4Q 2013 (Part 3 of 5)

(Continued from Part 2)

Science Applications International Corp (SAIC) is a 0.07% position initiated by DE Shaw in 4Q 2013.

SAIC is a technical, engineering, and enterprise IT services business with approximately 75% of its revenue coming from the U.S. Department of Defense. In September last year, SAIC’s board approved the separation of its technical, engineering, and enterprise information technology services business. The split took place in October creating two companies, the $4 billion SAIC, and a $6 billion technology company known as Leidos (LDOS). Leidos offers science and technology for national security, engineering, and health sectors. McLean-based SAIC retained government services, information technology, and financial analysis. The split was aimed to eliminate government organizational conflict of interests (OCI) caused substantially by the previous company’s products or development business. By eliminating OCIs in the spin-off transaction, SAIC’s addressable markets are estimated to increase by approximately $25 billion.

According to news reports, the split reflected the uncertainty faced by defense contractors with the impact of sequestration. Under former CEO Walter P. Havenstein, SAIC tried to shift to a coordinated approach to compete for contracts from being nearly autonomous, but the move did not yield results. The company saw a fall in profit and revenue and faced contracting scandals.

SAIC saw 3Q 2014 profit fall to $22 million, or $0.44 per share from the $45 million, or $0.90 per share, a year ago. This was primarily due to lower revenue volume, separation transaction, and restructuring costs, and to a minor degree, the government shutdown. Revenue for the quarter came in at $974 million versus the consensus estimate of $939.93 million, down from $1,186 million during the third quarter of the prior year.

Despite uncertainty in the government segment, SAIC won huge deals with The Federal Retirement Thrift Investment Board, The Defense Threat Reduction Agency, and the SSC Atlantic. The board declared a quarterly cash dividend of $0.28 per share payable on January 30, 2014. A research from the website TBR suggests SAIC’s new organization and strategy coupled with the removal of organization conflicts of interest will enable the firm to achieve revenue growth in 2H14.

Continue to Part 4

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