Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Is Science Applications (SAIC) a Suitable Value Pick Now?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Science Applications International Corporation SAIC stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

P/E Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Science Applications has a trailing twelve months PE ratio of 19.33, as you can see in the chart below:



Again, this level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.56. If we focus on the long-term PE trend, SAIC’s current PE level is fairly below the highs for this stock, suggesting it might be a good entry point.



Further, the stock’s PE compares favorably with the Zacks categorized IT Services industry’s trailing twelve months PE ratio, which stands at 23.74. This indicates that the stock is significantly undervalued right now, compared to its peers.



We should also point out that Science Applications has a forward PE ratio (price relative to this year’s earnings) of 18.30, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Science Applications has a P/S ratio of about 0.74. This is lower than the industry average, which comes in at 3.19 right now.



If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Science Applications currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This is because some of its other key metrics are also favorable.

For example, its P/CF ratio (another great indicator of value) comes in at 8.97, which is better than the industry average of 11.96. Clearly, SAIC is a solid choice on the value front from multiple angles.

What About the Stock Overall?

There are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘D’. This gives SAIC a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been disappointing. The current quarter has seen no upward estimate revision in the past sixty days compared to three downward, while the full year estimate has seen one upward and three downward revisions in the same time frame.

As a result, the current quarter consensus estimate has tumbled by 4.3% in the past two months, while the current year estimate has inched lower by 4.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Price and Consensus

This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
 
Bottom Line

Science Applications is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front. However, with a sluggish industry rank (bottom 27%) and a Zacks Rank #3, it is hard to get too excited about this company overall.

So, value investors might want to wait for analyst sentiments, estimates and broader factors to turn favorable in this name first, but once that happen, this stock could be a compelling pick.

Today's Stocks from Zacks' Hottest Strategies
                                                                                              
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>


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
 
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION (SAIC): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research