Investors are heavily selling Science Applications (SAIC, Financial) today, even though the U.S. government IT services provider reported Q1 results that matched analyst forecasts and reiterated its FY25 guidance. SAIC had been recovering well from a poor Q4, gaining over 17% since March 18. However, the market was disappointed with the in-line Q1 results given the positive trends from the previous quarter.
- SAIC reported Q1 adjusted EPS of $1.92 on a revenue decline of 8.8% year-over-year to $1.85 billion. Organic growth increased by just 0.4% year-over-year, a significant slowdown from the 7.4% rise last quarter, and below SAIC's FY25 forecast of 2-4%. This slowdown in organic growth contributed to today's negative reaction, as it puts pressure on the latter half of the year. Management noted that organic growth will stay flat in the first half of FY25, with mid-single-digit growth expected in the second half.
- SAIC's growth for the year is now more weighted towards the second half, as anticipated sales in Q2 have been pushed to Q3. Despite headwinds from recompete losses, SAIC remains confident it can achieve its outlined organic growth rate, though it will be more back-end loaded than initially expected.
- Despite today's stock performance, SAIC had some notable highlights this quarter. The company submitted proposals worth over $8 billion in total contract value (TCV), keeping it on track for its FY25 target of $22 billion in submissions, up from $17 billion in FY24. Two-thirds of this year's submissions are expected to be new business.
- SAIC is optimistic that its growth strategy will yield significant shareholder returns in FY26 and FY27, aiming for revenue of $7.95-8.10 billion by FY27, an 8% increase from its FY25 forecast. The company is focusing on five key government areas: domain warfighting, space, citizen experience, border security, and underwater dominance. SAIC is adjusting its portfolio to align with these long-term government initiatives.
After outperforming the broader market in 2022 with gains of over 30% and maintaining that momentum into early 2024, SAIC has encountered some recent challenges. The company has a history of exceeding earnings expectations, making last quarter's miss surprising. However, SAIC's recovery had given investors hope that it was a one-time issue. The in-line Q1 results, coupled with a heavier reliance on a strong second half for organic growth, have raised concerns that the positive trends seen in Q4 might indicate deeper structural issues rather than a temporary setback.
