We retain our Neutral recommendation on
CACI International, Inc.
). Even with major contract wins accruing during the last quarter,
the company was unable to placate us from fears emanating from
issues such as outlook decline and over-dependence on the
Department of Defense (DoD).
The company has been on a spree of winning contracts perennially
over the last few months. These amounted to nearly $547 million
during the third quarter of fiscal 2012. Not only do these add to
revenue prospects of the company but also help in building
effective relationships ossified with multi-year projects.
CACI International's expertise in making strategic acquisitions
has proved effectively fruitful over time. Even though management
did not indulge in acquiring any businesses of late, the company
reported generating $28 million revenues accrued from acquired
businesses in its third fiscal quarter.
Cyber threats have been looming large over quite sometime due to
which the demand for solutions and protective devices have surged
comprehensively too. This growing menace has fuelled the growth
prospects for CACI International in the industry making it an
attractive option for all organizations seeking such services. The
ongoing relationship it retains with the DoD is its biggest
panegyric in this regard.
This, however, has an unfavorable side to the picture. A major
budget cut is expected to occur in 2013 by the U.S. Congress. With
CACI International deriving almost 77.5% and 17.2% of revenues,
from the DoD and Federal Civilian Agencies, respectively, in the
last fiscal quarter declared, the adverse outcome of budget cuts
might deteriorate gains comprehensively as the company moves ahead
in the upcoming year. Hence, it would be wise for CACI to mitigate
its dependence on Government contracts as far as practicable in
order to steer away from fiscal pressures on its performance.
Management has already reported a decline in revenue projections
for full fiscal year 2012, dropping from an earlier expectation of
$3,850 million - $4,050 million to now fall within $3,730 million -
$3,830 million. Such a realistic stance can aver that management is
not looking too hopeful at present about its final quarter yields
of fiscal 2012.
One aspect which continually proves ominous to the company is
the fierce competition it faces in the industry. So, a wary eye
needs to be kept for any form of advances made by big players such
Hence, judging by the precarious climate the company is
experiencing, we find it wise to maintain a sideline stance for the
time being. In the short run, we have a Zacks #3 Rank on the stock
which translates into a short-term 'Hold' rating.
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