Science Applications SAIC recently secured three new contracts worth $58.2 million from the U.S. Navy. The first contract is on Jammer Technique Optimization (JATO), where SAIC will provide engineering support to the U.S. Navy’s JATO Program, which is part of the PMA-234 Advanced Development Integrated Product Team.
In the JATO contract, SAIC will improve the U.S. Navy’s data collection and processing capabilities and also execute jammer optimization. Science Applications will enable the U.S. Navy to enhance the readiness of its Electronic Attack (EA) 18G aircraft and electronic warfare assets.
SAIC also received two other contracts to support the U.S. Navy’s Airborne Electronic Attack (AEA) Integrated Product Team (IPT) International Program and the AEA IPT EA-18G program.
The AEA IPT International Program is focused on maintaining existing simulation tools and providing engineering and technical assistance and policy support. SAIC will also enhance relationship programs for EA and EW products and support the foreign military service (FMS) needs.
Science Applications International Corporation Price and Consensus
Science Applications International Corporation price-consensus-chart | Science Applications International Corporation Quote
In the third contract, Science Application will support the development and maintenance of both the U.S. Navy and FMS configurations of the EA-18G.
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, an agreement with the U.S. Navy’s Hypersonics Advanced Concepts and Strategic Missions Programs support and a $120 million contract from the Naval Supply Systems Command.
SAIC Gains From Growing Government Contracts
Science Applications continues to prioritize the federal government market and aims to boost its market presence. In 2021, 2022 and 2023, almost all of SAIC'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 Headwinds
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 LDOS 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 that affect 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 gained 0.6% compared with the Zacks Computer - IT Services industry’s growth of 0.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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