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Science Applications (SAIC) Surpasses Q3 Earnings Estimates

Zacks

Science Applications International Corp. SAIC reported solid third-quarter fiscal 2019 earnings of $1.35 per share, which beat the Zacks Consensus Estimate of $1.14 and increased 39.2% year over year.

Moreover, revenues jumped 3% from the year-ago quarter to $1.18 billion and outpaced the Zacks Consensus Estimate of $1.16 billion.

The increase in top line was driven by new contracts, which contributed $54 million to total revenues. Moreover, higher orders in the supply chain generated $24 million in revenues.

However, year-over-year decrease of $46 million in revenues due to a number of factors, including completion of several contracts, puts slight pressure on the top line.

Science Applications International Corporation Price, Consensus and EPS Surprise

Science Applications International Corporation Price, Consensus and EPS Surprise | Science Applications International Corporation Quote


Quarter in Details

Net bookings for the quarter were approximately $1.2 billion as a result of contract award activities, reflecting a book-to-bill ratio of approximately 1.0 in the quarter. At the end of the quarter, Science Applications’ estimated backlog of signed business orders was approximately $10.4 billion, including $2.4 billion of funds.

Total backlog was up 1% and funded backlog increased 14.3% sequentially.

Notably, the company won several Expand Awards during the quarter from the U.S. Navy Office of the Chief of Naval Operations. It also secured Protect Awards from the U.S. Army and The U.S. Navy Space and Naval Warfare and Defense Logistics Agency. It also received Grow Award from the U.S. Department of Agriculture and the General Services Administration.

During the quarter, Science Applications opened the Innovation Factory, a virtual lab environment for quicker delivery of software, services and solutions to government customers. The Innovation Factory will use technologies from both Science Applications and Red Hat RHT to enhance transformation journey of customers.

Margins

Adjusted Operating margin expanded 100 basis points (bps) year over year to 7.4% in the reported quarter. Adjusted EBITDA margin increased 90 bps to 8.3%.

The year-over-year increase in profits was primarily due to improved performance across the company’s portfolio and lower indirect costs.

Balance Sheet & Cash Flow

Science Applications ended the quarter with cash and cash equivalents of $193 million, up from $106 million reported in the previous quarter.

Operating cash flow was $86 million against an outflow of $12 million in the previous quarter. Free cash flow was $80 million against an outflow of $24 million sequentially. However, cash flow in the third quarter was negatively impacted by acquisition and integration costs of $5 million.

Science Applications spent $13 million in cash dividends. No share repurchases were made during the quarter because the company focused on other capital deployment opportunities, which include the pending closure of Engility acquisition.

Guidance

Science Applications continues to expect growth in revenues and anticipates EBITDA margin to increase 20-40 bps from 7% recorded in fiscal 2018. Free cash flow is expected to be around $250 million in fiscal 2019.

The company expects tax rate for the fiscal fourth quarter to be within 35-40% and that of the full fiscal to be between 22% and 23%.

Management is optimistic about its long-term strategy called Ingenuity 2025, which it expects to accelerate with the acquisition of Engility. The company expects to deliver increased customer access, higher investments in competitive and niche solutions and improved cash flow in the coming year.

Zacks Rank & Stocks to Consider

Science Applications currently has a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader Computer and Technology sector are CACI International, Inc. CACI and Stratasys, Ltd. SSYS, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for CACI and Stratasys is projected to be 10% and 15.75%, respectively.

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