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Loop Capital: CACI International Shares Are Attractive With Or Without CSRA Deal

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March 20, 2018 2:52 pm
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CACI INTERNATIONAL INC Common Stock (NYSE:CACI) announced a $44-per-share cash and stock offer for CSRA Inc (NYSE:CSRA), trumping the $40.75-per-share all-cash deal the latter agreed to with General Dynamics Corporation (NYSE:GD) in February.

The Analyst

Loop Capital Markets analyst Joseph Vafi maintained a Buy rating on CACI and upped the price target from $170 to $172.

CACI was also upgraded Tuesday by Raymond James from Outperform to Strong Buy with a price target lifted from $159 to $175. 

The Thesis

CACI shares look more attractive now relative to last week, given Monday's 7.5-percent pullback and an intraquarter increase to the company's 2018 earnings guidance.

Although Vafi said he's unsure whether the CACI offer is appealing enough for CSRA to reconsider its agreement with General Dynamics, the analyst said he views a CACI-CSRA tie up favorably, as the combination will create "an industry pure-play powerhouse."

The deal makes sense for CSRA shareholders long-term, Vafi said. 

As part of General Dynamics, CSRA would be materially diluted by the former's revenue mix, the analyst said.

Even without CSRA, the analyst said CACI shares could rebound quickly, given the industry's tailwinds and the modest guidance increase announced Monday.

For CACI, Loop Capital expects a slow rebound in organic revenue performance.

"Nevertheless we think that a combination of boosts to EPS and cash flow from tax reform, combined with continued EPS beats, provide enough for now to take CACI shares higher." 

The Price Action

CACI shares are up about 18 percent over the past year.

The shares were rallying 4.77 percent to $152.55 at the time of publication Tuesday afternoon. 

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