After A Mixed Q1 Print, Drexel Hamilton Says SAIC Shares Are Fairly Valued

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Science Applications International Corp SAIC reported Tuesday after the close with above-consensus first-quarter revenue and adjusted earnings per share. 

The Analyst

Drexel Hamilton analyst Brian Ruttenbur downgraded SAIC from Buy to Hold. 

The Thesis

SAIC's Q1 book-to-bill ratio was at a weak 8 times, and the guidance for fiscal 2019 is in line with its long-term growth plans for low-single digit revenue growth and 10-20-basis point margin expansion, Ruttenbur said in a Wednesday note.

The analyst characterized the Q1 results as mixed given "weak" bookings and an EBITDA figure that arrived $8 million below Drexel Hamilton's estimate. 

The sell-side firm lowered its fiscal 2019 revenue estimate from $4.6 billion to $4.5 billion and its adjusted EPS estimate from $4.33 to $4.25. Ruttenbur maintained the 2020 revenue estimate at $4.7 billion, but lowered the adjusted 2020 EPS estimate from $4.76 to $4.66.

SAIC's free cash flow projection of $250 million for fiscal 2019 and beyond is solid, the analyst said. 

SAIC shares trade at 14.6 times its FY19 EV/EBITDA guidance, a premium to the peer average of 12 times, Ruttenbur said. 

"We believe shares of SAIC should trade at a premium to its peers due to the company's above peer growth," the analyst said. 

"However, at current levels, we believe shares of SAIC are fairly valued."

The Price Action

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SAIC shares were plunging 6.6 percent to $82.27 at the time of publication Wednesday morning. 

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Posted In: Analyst ColorDowngradesAnalyst RatingsBrian RuttenburDrexel Hamilton
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