Science Applications (SAIC, Financial) experienced a setback with its Q4 (Jan) earnings report, marking its first bottom-line miss in four years alongside a cautious FY25 adjusted EPS guidance. Despite achieving a 15% increase in stock price earlier in the year, the company's Q4 revenue growth and optimistic FY25 revenue projections were not enough to prevent a decline in its stock value following the announcement.
Overview of SAIC's Operations:
- SAIC specializes in providing IT services to the U.S. government, focusing on complex projects that require advanced technology. The company welcomed Toni Townes-Whitley, a former President of U.S. Regulated Industries at Microsoft (MSFT, Financial), as its new CEO last June.
- Under Townes-Whitley's leadership, SAIC has initiated several strategic changes aimed at surpassing its original organic growth targets, transitioning from two operating sectors to five customer-centric business groups.
Q4 Performance and FY25 Outlook:
- SAIC reported a 7.7% year-over-year increase in Q4 revenue, reaching $1.74 billion, and has revised its FY25 revenue forecast upwards to $7.35-7.50 billion from the previous $7.25-7.40 billion range.
- The company's net bookings of approximately $1.4 billion in Q4 highlight its competitive advantage in securing government contracts.
- Despite these positive developments, SAIC's adjusted EPS fell by 30% year-over-year to $1.43, missing analyst expectations due to a 150 basis point reduction in operating margins, primarily caused by the sale of its supply chain management business and the deconsolidation of a joint venture.
- This decline in operating margins also led to a slight adjustment in SAIC's FY25 adjusted EBITDA margin guidance, now set at 9.2-9.4%, and maintained its adjusted EPS forecast at $8.00-8.20, despite the increased revenue outlook.
SAIC's recent earnings report may have disappointed some investors, leading to a sell-off, but the company's strong net bookings and strategic realignments suggest a robust foundation for future growth. The immediate market reaction might be seen as an overreaction, considering the company's solid position and ongoing demand for its services, particularly from the U.S. military.
