This Company Will Defend Its Growth

Anupriya is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

SAIC Inc. (NYSE: SAI), a company providing scientific, technical and engineering solutions, reported satisfactory third quarter results on Dec. 5 2012. Even in the constrained and cautious market, the company has demonstrated commitment and growth.

Numbers Say It All

SAIC’s revenue for the third quarter was $2.87 billion, surging up by 3% YOY, while it’s diluted earnings per share was $0.33, up from $0.27 per share in the same quarter last year. Defense solutions raked in revenue of $1.183 billion, 1% higher than the last year quarter, while Health, Energy, and Civil Solutions revenue increased by 2%. Intelligence and Cyber Security Solutions revenue was slightly down from the third quarter of the fiscal year 2012, but the operating income for the quarter increased. During the quarter the company paid a handsome cash dividend of $0.12 per share and intends to continue the same practice.

Competition Around

One of its main competitors, CACI International Inc, (NYSE: CACI), a leading provider of IT and Technology Consulting Services to the US government, has recently declared development of new business segments to explore its Federal Civilian and Business Systems markets. The company recently completed its acquisition of Emergint Technologies Inc, which is going to prove vital in the long run, posing a serious threat to SAIC.

Another competitor, ManTech International Corporation (NASDAQ: MANT), missed targets in the quarter ended September, with its sales down by 12% compared to the prior year quarter. It has recently bagged a contract worth $23 million from Marine Corps War fighting Laboratory (MCWL), which gives SAIC enough reason not to be complacent with its positive results.

A Look into the Future

SAIC Inc, with its crisp strategies and an aggressive approach is executing its plans well. Government spending in the defense market is expected to be significantly reduced as the government is undertaking crucial fiscal cuts. Therefore for the long term, SAIC plans to split up into two separate publicly traded companies. One company will be involved in commercial solution in the national security and health markets, while the other will focus on government technical services. This project, known as Project Gemini, will allow technology to be deployed in the appropriate area whose usage had been blocked earlier due to conflict of interests.

A Ray of Hope

SAIC has been awarded a prime contract by the U.S Air Force Research Laboratory (AFRL) worth $74 million to provide Blue Devil operations and maintenance services. Also, the company entered into an agreement with the Internal Revenue Service, which will lead to a tax expense reduction of almost $96 million. The company’s newly acquired healthcare IT consulting business also seems to be cashing in numerous projects and is expected to bring an upswing in future growth prospects. The company plans to considerably reform its cost structure, eliminating around 700 employees, which will prove beneficial in the competitive environment.

Wait and Watch

With positive quarterly results and promising future growth, the company seems to be marching towards progress. Splitting SAIC into two companies is expected to generate about $60 billion over the next 5 years. Though the current market is uncertain, involving potential budget curtailment by the government that may put pressure on the company’s future performance, the company has strong survival strategies involving many prime contracts in the pipeline. That's why I don’t think the company will be negatively affected.


anupriya123 has no positions in the stocks mentioned above. The Motley Fool owns shares of ManTech International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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