is in what one would expect to be a hot sector, creating and deploying information technology in specialized areas such as security and defense. But a coming slowdown in U.S. defense spending has analysts concerned for the outlook, and the company is using M&A to expand its capabilities in a bid to offset slower growth.
SAIC provides scientific, engineering, systems integration and technical services and solutions to all branches of the U.S. military, agencies of the U.S. Department of Defense (DoD), the intelligence community, the U.S. Department of Homeland Security (DHS) and other U.S. government civil agencies, state and local government agencies, foreign governments and customers in selected commercial markets.
The company’s works on national security, energy and the environment, critical infrastructure and health. “We are focusing our investments to expand our business in areas emphasizing: intelligence, surveillance and reconnaissance; cyber security; logistics, readiness and sustainment; energy and environment; and health technology,” management said in a recent filing.
Nevertheless, revenues from government accounted for 97 percent of total revenues in fiscal 2011, and that was mostly from U.S. government contracts, the company said. On the smaller, commercial side, the company is developing oil and gas and information technology services.
Over the last five years, the SAIC has made 21 acquisitions in the areas of cyber security, engineering consulting, language translation, and military defense. “The acquisition of businesses is part of our growth strategy to provide new or enhance existing capabilities and offerings to customers and to establish new or enhance existing relationships with customers,” management said.
SAIC has a market cap of $3.79 billion in a sector, information technology services, where the average company size is $9.78 billion. Its projected earnings per share growth for the coming year is 1.5 percent, compared to a sector average of 12.65 percent
Analysts are mixed on SAIC. Jefferies has the stock rated as a buy, while Standard & Poor’s analysts rate it a a sell.
“We recently lowered our opinion on the shares to strong sell, from hold. In general, we think overall government spending for the Department of Defense will be flat or lower, affecting revenues for the foreseeable future,” S&P analysts wrote on May 14.
SAIC next reports on May 31.
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