CACI International Slips to Strong Sell - Analyst Blog

On May 20, Zacks Investment Research downgraded technical services provider CACI International Inc. CACI to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #4 (Sell), primarily due to downward estimate revisions following its modest third-quarter fiscal 2014 earnings release.

Despite the downtrend, the company still has the potential to drive the stock up. The stock is currently trading at a forward P/E of 13.5x with a PEG ratio of 1.1x and long-term earnings growth expectation of 12.5%.

Why the Downgrade?

CACI reported unimpressive third-quarter results with revenues and earnings declining year over year due to high amortization charges. On a GAAP basis, earnings were $30.8 million or $1.19 per share, down from $38.4 million or $1.62 a share in the year-earlier quarter. The year-over-year decline was primarily attributable to a reduction in revenue and a full quarter of amortization of intangibles associated with the acquisition of Six3 Systems. Earnings per share were also adversely affected by the dilutive effect of convertible notes scheduled to mature on May 1, 2014. Adjusted earnings in the reported quarter stood at $1.78 per share versus $2.08 in the year-ago quarter.

Quarterly revenues were down 0.6% year over year to $900.4 million due to delays in planned awards, lower run rates on professional services contracts and reductions in Afghanistan-related material purchases. Operating income stood at $60.5 million in the reported quarter versus $68.6 million in the year-ago quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased to $78.7 million from $83.1 million in the year-ago quarter. EBITDA margin for the quarter was 8.7% compared with 9.2% in the prior-year period.

Over the last couple of months, most of the earnings estimates for CACI were revised downward for fiscal 2014 as well as for fiscal 2015. This seems to be the fallout of lackluster results in the recently reported quarter and an insipid guidance. Given the challenging macroeconomic environment, management is not bullish for fiscal 2014. It appears that management is finding it quite onerous to battle the fiscal pressures and precarious budgetary situation – a challenging situation to grapple with at present.

Other Stocks to Consider

Other stocks that look promising and are worth looking into now include CSG Systems International Inc. CSGS, iGATE Corporation IGTE and Lionbridge Technologies Inc. LIOX, each carrying a Zacks Rank #2 (Buy).

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