It has been about a month since the last earnings report for SAIC (SAIC). Shares have lost about 1.5% in that time frame, outperforming 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 Reports Q3 Results
Science Applications 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.
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 to enhance transformation journey of customers.
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.
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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -15.97% due to these changes.
Currently, SAIC has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, SAIC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.