Science Applications SAIC recently announced that it has received a $120 million contract from the Naval Supply Systems Command (“NAVSUP”). This contract follows other Naval projects, including a $375 million U.S. Navy contract for Modern Vehicle Fielding Integration and Support, a $80.5 million deal with MK 710 Torpedo System Test Set and an agreement with the U.S. Navy’s Hypersonics Advanced Concepts and Strategic Missions Programs support.
The latest NAVSUP contract is a five-year long, cost-plus fixed-fee agreement. SAIC will continue supporting the Tactical Training Group Pacific (TTGP) Yokosuka, Expeditionary Warfare Training Group Pacific, Carrier Strike Group 15 and TTGP fleet training mission.
Science Applications will use its technical expertise to provide fleet synthetic training, live virtual constructive training and subject matter expert classroom support for warfighting tactics, techniques and procedures through the training modules developed by the government.
Science Applications International Corporation Price and Consensus 
Science Applications International Corporation price-consensus-chart | Science Applications International Corporation Quote
SAIC Gains From Its Government Client Base
Science Applications continues to prioritize the federal government market and aims to increase its market presence. In 2021, 2022 and 2023, almost all of Science Application's revenues, approximately 98%, came from contracts with the U.S. government. SAIC’s main clients include various government agencies, such as the Homeland Security, NASA, the Department of State and the military branches like the Navy, Airforce and Army.
Having the Navy and other federal agencies as major clients stabilizes the business and minimizes revenue fluctuations. Also, the government projects, once sanctioned, generate revenues for several years, adding to the predictability of future revenue streams.
Science Applications also benefits from the higher spending as proposed in the latest federal government budget. The increased budget is expected to accelerate the pace of contract awards, which, in turn, will be beneficial for SAIC’s top-line growth.
Macroeconomic and Competitive Challenges
Science Applications operates in a highly competitive defense, space, intelligence and mission-critical services market that consists of players, including CACI International CACI, KBR Inc. KBR and Leidos Holdings LDOS.
CACI, KBR and Leidos also receive contracts from the Department of Defense, the Department of Homeland Security and other U.S. government agencies, causing a highly competitive environment in this niche industry. The pricing pressure causes low-margin government deals affecting SAIC’s profitability.
Science Applications is also facing headwinds from rising component costs and increasing labor and logistics expenses. Moreover, recession concerns amid the ongoing macroeconomic and geopolitical tensions might lead to softened spending by government agencies. The company’s near-term prospects are weighed down by these negative factors.
Conclusion
Science Applications is receiving a steady flow of deals from government agencies. However, most of these contracts have low margins, which affects its profitability. Intensified competition and softened customer spending amid uncertain microeconomic conditions are other concerns.
Science Applications carries a Zacks Rank #3 (Hold) at present. Shares of SAIC have lost 0.6% compared with the Zacks Computer - IT Services industry’s decline of 1.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpKBR, Inc. (KBR) : Free Stock Analysis Report
CACI International, Inc. (CACI) : Free Stock Analysis Report
Science Applications International Corporation (SAIC) : Free Stock Analysis Report
Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
