SAIC (SAIC) Down 8.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for SAIC (SAIC). Shares have lost about 8.9% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Science Applications (NYSE:SAIC) Q4 Earnings Top Estimates

Science Applications reported mixed results for fourth-quarter fiscal 2021, wherein earnings topped the Zacks Consensus Estimate but revenues missed the same. Nonetheless, the company recorded year-over-year growth in both metrics, mainly benefiting from higher demand for its technology solutions owing to the ongoing digital transformation wave across the defense, space, intelligence and civilian markets.

The company’s fiscal fourth-quarter adjusted earnings increased 6% year over year to $1.67 per share and surpassed the Zacks Consensus Estimate by 16.8%.

Quarterly revenues grew 11% from the year-ago period to $1.72 billion. Revenues realized from the acquisition of Unisys (NYSE:UIS) Federal mainly drove the top line. Solid performance of the company’s contract portfolio, including new U.S. Air Force contract wins, was a tailwind. Adjusting for the impact of acquired revenues, the metric inched up 0.8%.

However, quarterly revenues fell short of the consensus mark of $1.78 billion. An $80 million impact on revenues due to lower volumes in the supply chain business, reduced FAA training service revenues and profit recovery on ready-state labor hurt the top line.

The pandemic also resulted in an impact of $4 million on adjusted EBITDA during the quarter.

Quarter in Detail

Net bookings for the fiscal fourth quarter were $0.7 billion, reflecting a book-to-bill ratio of 0.4. Science Applications’ estimated backlog of signed business deals was $21.5 billion, of which $3 billion was funded.

Non-GAAP operating income grew 5% year over year to $109 million, primarily driven by Unisys Federals’ acquisition along with lower integration and indirect costs. However, non-GAAP operating margin contracted 50 basis points to 6.3% mainly due to the COVID-19 impact.

Adjusted EBITDA increased 19% year over year to $159 million. Moreover, adjusted EBITDA margin expanded 60 basis points to 9.3%.

Balance Sheet & Cash Flow

Science Applications ended the fiscal fourth quarter with cash and cash equivalents of $171 million, down from the prior quarter’s $182 million.

The company generated operating cash flow of $53 million during the quarter and $755 million in 2021. The quarterly cash flow from operating activities was $16 million lower year over year due to higher income tax payments and a net increase in working capital.

However, the cash flow from operating activities for the fiscal year was higher year over year, driven by cash provided from operating activities of Unisys Federal and deferred payroll tax payments.

Excluding the MARPA facility, free cash flow was $54 million in the fourth quarter and $524 million in the full fiscal year.

During the reported quarter, Science Applications deployed $239 million of capital, which includes $21 million for dividend payments, $18 million for mandatory debt repayment and $200 million for voluntary debt repayment.

Guidance

Science Applications provided its fiscal 2022 guidance. The company anticipates revenues between $7.1 billion and $7.3 billion. The top-line guidance indicates a negative impact of $150 million to $200 million on the supply chain portfolio, stemming from the coronavirus pandemic.

It reaffirmed adjusted earnings in the $6-$6.25 per share range.

Free cash flow is expected between $430 million and $470 million in fiscal 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -12.68% due to these changes.

VGM Scores

Currently, SAIC has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise SAIC has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.