Shares of SAIC Inc., a provider of engineering and technology services, rose as much as 6.5 percent Wednesday after the company announced it would pay a special $1 a share dividend to investors in late June.
Just before the close, the shares were up 50 cents, or 3.9 percent, at $13.32. The stock earlier touched $13.65, the biggest percentage gain since December 2011.
Cai von Rumohr, an analyst with Cowen & Co. in Boston who rates McLean, Virginia-based SAIC “outperform,” said Chairman and Chief Executive Officer John Jumper is taking the right steps by cutting costs, planning to split the company into two publicly traded units and instituting the special dividend.
“This is our favorite defense stock,” he said in a phone interview. “He’s doing the types of things that should increase shareholder value.” SAIC is the 10th-largest defense contractor for the U.S. government.
Analysts including Robert Stallard at RBC Capital Markets LLC disagree. Stallard is one of two analysts who downgraded the stock in February because of looming federal government budget cuts. Automatic spending reductions known as sequestration took effect March 1 and will trim $85 billion through September across all federal agencies.
Stallard reiterated his “underperform” rating on SAIC, citing “limited potential for the stock beyond” the dividend in a note to investors Wednesday. SAIC depends on the U.S. government for about 90 percent of its revenue, according to data compiled by Bloomberg.
The Pentagon must cut its 2013 budget by $46 billion, representing about 54 percent of the $85 billion in planned reductions planned by Sept. 30, when the fiscal year ends.
The Defense Department reductions are in addition to $487 billion in cuts already planned over a decade.
Still, the special $1 a share dividend was an “upside surprise,” said Jason Kupferberg, an analyst with New York- based Jefferies LLC, who has a “buy” rating on the stock.
“The company is increasingly committed to returning cash to shareholders,” Kupferberg said in a phone interview. “I think that was the biggest reason for the stock’s move today.”
SAIC on Tuesday forecast full-year per-share earnings of $1.16 to $1.33.
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