A month has gone by since the last earnings report for CACI International (CACI). Shares have lost about 0.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is CACI International due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
CACI International Reports Q3 Results
CACI International reported third-quarter fiscal 2019 results, wherein both earnings and revenues beat the Zacks Consensus Estimate.
The company benefited from strong program performance, acquisitions, and record awards and contract funding.
Earnings for the quarter were $2.69 per share compared with $2.33 in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate of $2.30. Lower 2019 tax rates due to a tax reform in fiscal 2018, and $4 million worth of tax benefits realized in the fiscal third quarter contributed to the bottom-line performance.
Quarterly revenues were $1.26 billion, up 12.5% from the year-ago quarter. The rise was primarily attributable to new business wins, acquired contracts and on-contract growth, which aided organic expansion. The top line also surpassed the consensus estimate of $1.24 billion.
Contract awards in the reported quarter were worth $2.7 billion, up a whopping 93.5% year over year, of which approximately 85% came from new businesses. Revenues from contract awards excluded ceiling values of multi-award, indefinite delivery, indefinite quantity (IDIQ) contracts.
Contract funding orders were $1.7 billion, up 50.8%.
Total backlog as of Mar 31, 2019 was $14.9 billion, 35.3% higher than prior-year quarter. Funded backlog at the end of March was $2.9 billion, up 51.6%.
In terms of customer mix, the Department of Defense accounted for about 70.1% of total revenues in the reported quarter. Federal Civilian Agencies contributed about 25.2% while Commercial and other customers accounted for 4.7% of revenues.
During the quarter, CACI secured several notable contracts. These included a five-year, $415 million contract to design and deploy new technologies for signals intelligence, electronic warfare and cyber security; and a five-year, $71 million task order to assist the U.S. Army with next generation of soldier sensor and laser products and systems. It also won a five-year, $61 million prime contract with the Defense Health Agency’s Theater Enterprise-Wide Logistics System; a prime position on a 10-year, multiple-award IDIQ contract, with a ceiling value of $982 million, to provide electronic warfare and cyber capability research and development. Another notable one was the seven-year, multiple-award Cyber Mission Engineering IDIQ contract, with a shared ceiling value of $898 million to provide cyber engineering and electronic warfare solutions to the U.S. Navy.
During the quarter, the integration of LGS Innovations (acquired in March) and Mastodon Design (acquired in January) was largely completed.
These buyouts, when combined with CACI’s capabilities, are expected to enable the company to provide products and solutions that address robust requirements in the areas of signals intelligence and spectrum management, electronic warfare, communications, C4ISR and cyber defense.
Operating income for the quarter came in at $94.9 million, down 9.4% from the year-ago quarter. The tough year-over-year comparison was a result of transaction-related expenses of about $14 million in the third quarter of fiscal 2019 as opposed to $22 million worth of non-recurring benefits in the prior-year quarter. The impact of a tax reform in fiscal 2018 was an overhang.
Operating income margin contracted 180 basis points (bps) year over year to 7.5%.
Adjusted EBITDA for the fiscal third quarter decreased 4.7% year over year to $117.2 million. Adjusted EBITDA margin of 9.3% contracted 160 bps.
Balance Sheet and Cash Flow
At the quarter end, CACI had cash and cash equivalents of $93.8 million compared with $70.7 million in the previous quarter.
Total long-term debt was $1.07 billion.
Cash flow from operations as of Mar 31, 2019, was $452.8 million compared with $139.5 million in the previous quarter.
Encouraged by improved core business and tax benefits to be realized throughout the fiscal year, CACI raised guidance for fiscal 2019.
Revenues are now expected in the range of $4.9 billion to $5.03 billion, up from the previous guidance of $4.88-$5.03 billion.
The company also raised its net income and earnings guidance for fiscal 2019.
Net income is now expected in the range of $262-$270 million, up from $255-$265 million guided earlier.
Earnings per share are now expected to be between $10.31 and $10.63, up from the previously projected range of $9.96-$10.35.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.23% due to these changes.
Currently, CACI International has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CACI International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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