Shares of Science Applications International Corp. (SAIC) are in focus in afternoon trading, rising nearly 1% after Cowen upgraded the stock and Seaport Global reiterated a Buy rating in the days following the company's second quarter earnings report.
WHAT'S NEW: After the market close last Thursday, SAIC reported Q2 adjusted earnings per share of $1.35 on revenue of $1.59B, compared to analysts' estimates of $1.29 and $1.63B, respectively. Adjusted EBITDA as a percentage of revenues for the quarter rose to 8.4%, compared to 7.5% for the prior year quarter, driven by the acquisition of Engility and cost synergies related to the deal, the company said. “SAIC had a solid quarter, keeping our attention on operational performance, completing another key acquisition integration milestone, and delivering strong business results," said SAIC CEO Nazzic Keene. "We continue to build momentum and leverage our new breadth to offer deeper expertise to our customers, focus on our people, and drive profitable growth."
GUIDANCE: Meanwhile, SAIC said on its quarterly conference call that even though it exceeded its revenue expectations for the first half of the year, it is cautious about a revenue increase in the second half. The company said that it expects second half revenues to be consistent with its first half revenues of about $3.2B. In terms of margins, SAIC expects fiscal 2020 standalone SAIC adjusted EBITDA margin of 7.5% and free cash flow of $425M for the year.
COWEN UPDGRADE: On Monday, Cowen analyst Cai von Rumohr upgraded SAIC to Outperform from Market Perform and raised his price target on the stock to $102 from $92, saying that the "strong" Q2 results, despite the recent selloff following the FY20 revenue guidedown, offer an "attractive" risk/reward scenario. Though the analyst said that revenue guidedown was a "big surprise," the move "bolsters potential" for reported fiscal 2021 sales growth. In addition, von Rumohr noted that he finds it reasonable to look for 8.4% adjusted EBITDA margin for the fiscal year based on SAIC's Q2 adjusted EBITDA margin of 8.5%, particularly since IT systems integration is complete.
SEAPORT BACKS BUY: The Cowen note came three days after Seaport Global analyst Josh Sullivan backed a Buy rating and $97 price target on SAIC, saying that Q2 was "operationally strong," though revenue guidance was impacted mostly by timing delays. The analyst said that the company is performing ahead of expectations, with a book-to-bill ratio of 1.2x that supports additional growth, and that the largest impact to revenue guidance was from an Air Force contract, which has been protested and is expected to be resolved in the coming months. In addition, Sullivan noted that the company accelerated cost/margin synergies from the Engility acquisition and that customers funding expectations for a Continuing Resolution in the fourth quarter had the smallest impact.
PRICE ACTION: In early afternoon trading, SAIC shares are up almost 1% to $83.50.
