Why Is SAIC (SAIC) Down 5.4% Since Last Earnings Report?
It has been about a month since the last earnings report for SAIC (SAIC). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is SAIC 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.
Science Applications Q3 Earnings & Sales Beat Estimates
Science Applications reported third-quarter fiscal 2024 adjusted earnings of $2.27 per share, surpassing the Zacks Consensus Estimate by 36.7%. The figure increased 19% year over year.
The robust year-over-year growth in the bottom line was primarily driven by strong operating performance along with the benefits of a lower tax rate and reduction in outstanding share count.
Revenues decreased 1% year over year to $1.90 billion but outpaced the consensus mark by 6.5%. The year-over-year decline was due to the sale of the logistics and supply chain management division, the Forfeiture Support Associates joint venture's deconsolidation and finishing contracts. The downside was partially offset by a ramp-up in existing and new contracts.
Nevertheless, the top line increased 10.6% when adjusted for the impact of the logistics and supply chain management division divesture and the deconsolidation of the Forfeiture Support Associates joint venture.
Adjusted EBITDA was $178 million, up 5% year over year. The adjusted EBITDA margin expanded 50 basis points (bps) on a year-over-year basis to 9.4%. The year-over-year growth was driven by improved profitability across the contract portfolio and lower indirect costs.
Quarter in Detail
Net bookings for the fiscal third quarter were $2.5 billion, reflecting a book-to-bill ratio of 1.3. SAIC’s estimated backlog of signed business deals was $23.1 billion at the end of the fiscal third quarter, of which $4 billion was funded.
Selling, general and administrative (SG&A) expenses remained unchanged at $87 million. SG&A expenses, as a percentage of revenues, remained almost flat at 4.6%.
Non-GAAP operating income increased 6% year over year to $144 million. The non-GAAP operating margin expanded 50 bps year over year to 7.6%.
Balance Sheet & Cash Flow Details
Science Applications ended the fiscal third quarter with cash and cash equivalents of $311 million, down from the prior quarter’s $352 million.
As of Nov 3, 2023, Science Applications’ long-term debt (net of the current portion) was $2.2 billion compared with $2.25 billion as of Aug 4, 2023.
The company generated operating and free cash flows of $101 million and $97 million, respectively, in the fiscal third quarter. The company generated operating and free cash flows of $333 million and $317 million, respectively, in the first three quarters of fiscal 2024.
Raised Fiscal 2024 Guidance
SAIC raised its guidance for the full fiscal 2024. The company now anticipates revenues in the band of $7.325-$7.350 billion in fiscal 2024 instead of the earlier projected range of $7.20-$7.25 billion.
Science Applications now expects adjusted earnings in the band of $7.70-$7.90 per share, up from the previous range of $7.20-$7.40.
SAIC still expects to generate free cash flow between $460 million and $480 million in fiscal 2024. It continues to project the adjusted EBITDA margin between 9.3% and 9.4% in fiscal 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -7.94% due to these changes.
VGM Scores
Currently, SAIC has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, SAIC has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
SAIC belongs to the Zacks Computers - IT Services industry. Another stock from the same industry, Nutanix (NTNX), has gained 2.5% over the past month. More than a month has passed since the company reported results for the quarter ended October 2023.
Nutanix reported revenues of $511.05 million in the last reported quarter, representing a year-over-year change of +17.9%. EPS of $0.29 for the same period compares with $0.03 a year ago.
Nutanix is expected to post earnings of $0.29 per share for the current quarter, representing a year-over-year change of +141.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +66.7%.
Nutanix has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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