SAIC Expands Client Base With DIR Deal: What Should Investors Do?

Science Applications International Corp. SAIC shares have plunged 18% in the past three months, underperforming the Zacks Computers - IT Services industry, Zacks Computer and Technology sector and the S&P index’s growth of 7.4%, 9.8% and 6.6%, respectively.Science Applications’ underperformance can be attributed to the temporary challenges that SAIC is facing due to contract transitions and improved bid selections, creating revenue gaps. SAIC’s dim outlook for fiscal 2025 revenues of $7.425-$7.475 billion also raises investors’ concern for the stock. Nevertheless, SAIC is recouping from these headwinds and is gaining fresh contracts.SAIC recently secured a deal worth $170.9 million from the Texas Department of Information Resources (“DIR”). In this deal, SAIC will provide cybersecurity services, including security operation services, compliance support, surveillance and risk management services.The new DIR contract demonstrates SAIC's growing presence in state and local government sectors, where it already provides IT and cybersecurity services to the Commonwealth of Virginia, Colorado and California.SAIC Price Performance ChartImage Source: Zacks Investment ResearchSAIC Gains From Its Government Client BaseScience Applications continues to prioritize the federal government market and aims to increase its market presence. In 2021, 2022 and 2023, approximately 98% of Science Application's revenues came from contracts with the U.S. government. SAIC’s main clients include various government agencies, such as Homeland Security, NASA, Department of State, and the military branches like the Navy, Airforce and Army.Having the Navy and other federal agencies as major clients stabilizes the business and minimizes revenue fluctuations. Also, the government projects, once sanctioned, generate revenues for several years, adding to the predictability of future revenue streams.Science Applications also benefits from the higher spending as proposed in the latest federal government budget. The increased budget is expected to accelerate the pace of contract awards, which, in turn, will be beneficial for SAIC’s top-line growth.Macroeconomic and Competitive ChallengesScience Applications operates in a highly competitive defense, space, intelligence and mission-critical services market that comprises players like CACI International CACI, KBR Inc. KBR and Leidos Holdings LDOS.CACI, KBR and LDOS secure several contracts from the Department of Defense, the Department of Homeland Security and other U.S. government agencies, causing highly competitive environment in this niche industry. The pricing pressure causes low-margin government deals, affecting SAIC’s profitability.Science Applications is also facing headwinds from rising component costs and increasing labor and logistics expenses. Moreover, recession concerns amid the ongoing macroeconomic and geopolitical tensions might lead to softened spending by government agencies. The company’s near-term prospects are weighed down by these negative factors.SAIC projects its fiscal 2025 revenues in the range of $7.425-$7.475 billion. The Zacks consensus estimate for fiscal 2025 revenues is pegged at 7.43 billion, indicating a decline of 0.13% year over year.What Should Investors Do?SAIC faced multiple revenue-related headwinds last year. However, the company is on the path of recovery and is getting multiple contracts from the government.Considering these factors, it is prudent to retain this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report KBR, Inc. (KBR): Free Stock Analysis Report CACI International, Inc. (CACI): Free Stock Analysis Report Science Applications International Corporation (SAIC): Free Stock Analysis Report Leidos Holdings, Inc. (LDOS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks