Why Science Applications (SAIC) Is a Promising Portfolio Pick
Science Applications International Corporation SAIC is one stock investors should consider adding to their portfolio to benefit from its upside potential.
Tech stocks have made a remarkable run year to date (YTD) after a massive sell-off in 2022 on recession concerns, inflationary pressure, increased oil prices and higher interest rates. With a YTD rise of 44.2%, the tech-laden Nasdaq Composite has outperformed The Dow Jones Industrial Average and the S&P 500 index’s increase of 13.8% and 24.6%, respectively.
Technology stocks have more than 50% of weightage in the Nasdaq Composite index. Technology Select Sector SPDR, the most important component of the broad market index, has returned 55.2% YTD.
However, Science Applications is among such stocks that have been left behind this year’s tech rally. The stock has surged 12.5% YTD, while the Zacks Computer – IT Services industry has risen 39.1% during the same time frame. Therefore, considering the company’s impressive growth profile and attractive valuation, we believe it is the right time to invest in the stock.
Science Applications International Corporation Price and Consensus
Science Applications International Corporation price-consensus-chart | Science Applications International Corporation Quote
Why Should You Invest in SAIC Stock?
Science Applications stock currently trades lower than the 52-week high, which reflects its potential to go upward. The stock’s closing price of $124.76 on Dec 28 is 7.6% lower than the 52-week high of $136.05 attained on Dec 4.
Moreover, Science Applications currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-sales multiple of 0.88X compared with its five-year average of 1X. It also trades at a discount to the Zacks Computer – IT Services industry’s one-year forward price-to-sales multiple of 6.81X.
Additionally, amid ongoing macroeconomic headwinds and geopolitical issues, it is prudent to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks, with their solid fundamentals, allow investors to hedge their funds from any economic downturn.
Apart from having solid fundamentals, Science Applications sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Science Applications has an impressive earnings surprise history. The company outpaced estimates in each of the trailing four quarters, delivering an average earnings surprise of 27.4%. Additionally, earnings estimates for SAIC’s current and next fiscal year have increased, implying robust inherent growth potential.
The Zacks Consensus Estimate for fiscal 2024 earnings has been revised 48 cents upward over the past 30 days to $7.88 per share. The consensus mark for fiscal 2025 earnings has been revised 7.2% upward to $8.17 per share in the past 30 days.
Long-Term Growth Drivers
Science Applications is benefiting from the higher demand for its technology solutions due to the ongoing digital transformation wave across the defense, space, intelligence and civilian markets. The strong performance of its contract portfolio is also a tailwind.
Science Applications is currently focusing on the federal government marketplace and capturing more market share. It intends to drive operational excellence by intensively focusing on its organic and inorganic growth strategy and strengthening existing customer relationships while building newer ones. Increased federal spending is anticipated to accelerate the pace of contract awards, which will be beneficial for the company’s top line.
Having the government as a big client lends stability to the business and moderates fluctuation in revenues. Although the government generally has a lengthy approval process, the project earns money for many years after it has been approved. Moreover, government contracts improve the visibility of future revenue streams.
The company has been doing very well with a record level of awards, which reflects its disciplined business development actions, consistent operational excellence and high customer satisfaction. The company continues to execute its strategy of winning high-value contracts, delivering excellence to customers and deploying capital for growth. Its robust business model is expected to help it grow further. As of Nov 3, 2023, SAIC’s total contract backlog was $23.1 billion.
Earlier, in December 2023, Science Applications unveiled its plan to reorganize its business structure, moving away from its current setup of two large divisions — Defense & Civilian Sector and National Security & Space Sector. Instead, it will establish five new smaller business groups — Army, Navy, Air Force and Combatant Commands, Space and Intelligence and Civilian Group. The Civilian Group will consist of the present Civilian, Health and State and Local businesses.
The reorganization will help SAIC better align with its four strategic areas, namely portfolio, go-to-market, culture and brand. This will benefit Science Applications by allowing it to refocus on its strengths and expertise and reallocate resources toward strategic goals. Similarly, it will result in better alignment of the departments with their customer needs.
Other Stocks to Pick
Some other top-ranked stocks from the broader technology sector are Zoom Video Communications Inc. ZM, NVIDIA Corporation NVDA and CrowdStrike Holdings, Inc. CRWD. While Zoom sports a Zacks Rank #1, NVIDIA and CrowdStrike each carry a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Zoom’s fiscal 2024 earnings has been revised upward by 3 cents to $4.94 per share in the past 30 days, suggesting year-over-year growth of 13%. The long-term estimated earnings growth rate for the stock stands at 33.5%. Shares of ZM have risen 7.9% YTD.
The consensus mark for NVIDIA’s fiscal 2024 earnings has been revised upward by 12 cents to $12.29 per share over the past 30 days, indicating a whopping 268% increase from fiscal 2023. It has a long-term earnings growth expectation of 13.5%. YTD, NVDA stock has surged 239.1%.
The Zacks Consensus Estimate for CrowdStrike’s fiscal 2024 earnings has been revised upward by 12 cents in the past 30 days to $2.94 per share, which calls for an increase of 90.9% on a year-over-year basis. The long-term expected earnings growth rate for the stock is pegged at 36.1%. CRWD stock has returned 143.3% YTD.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
CrowdStrike (CRWD) : Free Stock Analysis Report
