A month has gone by since the last earnings report for SAIC (SAIC). Shares have lost about 5.2% 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 Q2 Earnings Beat, Increase Y/Y
Science Applications reported mixed results for second-quarter fiscal 2021, wherein its earnings topped the Zacks Consensus Estimate but revenues missed the same. Nonetheless, the company recorded year-over-year growth in both the metrics.
The company’s fiscal second-quarter adjusted earnings surged 21% year over year to $1.63 per share and surpassed the Zacks Consensus Estimate of $1.42 per share. The year-over-year upside was mainly driven by higher revenues and reduced outstanding share count.
Quarterly revenues jumped 11% from the year-ago period to $1.76 billion. Revenues realized from the acquisition of Unisys Federal mainly drove the top line. Solid performance of the company’s contract portfolio was a tailwind. Adjusting for the impact of acquired revenues, the metric inched down 0.7%. Moreover, quarterly revenues fell short of the consensus mark of $1.79 billion.
Quarter in Detail
Science Applications stated that its business was resilient to the coronavirus pandemic-induced crisis. The crisis had limited impact on its fiscal second-quarter performance. It affected quarterly revenues and adjusted EBITDA by $65 million and $8 million, respectively. The company also stated that the coronavirus crisis had an immaterial impact on its net free cash flow.
Net bookings for the fiscal second quarter were $4.6 billion, reflecting a book-to-bill ratio of 2.6. Science Applications’ estimated backlog of signed business deals was $19.4 billion, of which $3.1 billion was funded.
Non-GAAP operating income grew 14% year over year to $115 million. Moreover, non-GAAP operating margin expanded 20 basis points to 6.5% mainly due to higher revenues.
Adjusted EBITDA marginally increased year over year to $167 million from $134 million in the year-ago quarter. Moreover, adjusted EBITDA margin expanded 110 basis points to 9.5%, chiefly driven by gains associated with the resolution of certain legal and program contract matters and reduced indirect costs.
Balance Sheet & Cash Flow
Science Applications ended the fiscal second quarter with cash and cash equivalents of $197 million, down from the prior quarter’s $276 million.
The company generated operating cash flow of $104 million during the quarter and $471 million in the first half of fiscal 2021. Operating cash flow generated in the year-ago quarter and the first half of fiscal 2020 was $95 million and $273 million respectively.
The improvement reflects cash provided from operating activities of Unisys Federal and deferred payroll tax payments. Free cash flow was $90 million in the second quarter and $448 million in the first half of fiscal 2021.
During the reported quarter, Science Applications deployed $163 million of capital, which includes $21 million for dividend payments, $17 million for mandatory debt repayment and $125 million for voluntary debt repayment.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, SAIC has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, 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. Notably, SAIC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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