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SAIC Shares Downgraded By Cowen As Valuation Approaches Parity

SAIC, Booz Allen Hamilton Holding Corporation NYSE:BAH - SAIC Shares Downgraded By Cowen As Valuation Approaches Parity

Cowen has downgraded Science Applications International Corp SAIC ("SAIC") to Market Perform from Outperform on valuation.

Review Of Q2

"Q2 continued SAIC's record of impressive performance; but up a peer-high 20 percent since midyear, the stock sells for an above-avg 11.7x C17 EV/EBITDA and looks less compelling than peers Leidos Holdings, Inc. LDOS & Booz Allen Hamilton Holding Corporation BAH," analyst Cai von Rumohr wrote in a note.

The company's second-quarter adjusted EPS of $0.85 beat consensus by $0.06 and Cowen's estimate by $0.05 on higher op income and lower interest. Revenues of $1.095 billion were in line.

Estimates, Valuation And Expectations

Following strong second quarter, von Rumohr raised FY17 adjusted EPS view by $0.03 to $3.33 and set FY18 EPS estimate at $3.75. The analyst also expects SAIC to raise its dividend at next week's board meeting, speculating the bump to come in at $1.36/ share (+10 percent).

Related Link: SAIC Granted $86 Million Task Order By American Air Force

"But with an est. $400+ million in free cash flow through year-end FY18, and no near term debt paydown under the new debt agreement, SAIC can both boost cash to its $150 million target and have ~$250 million in firepower for additional deployment," von Rumohr noted.

The analyst, who assumes the company uses about $190 million for share repurchase, has raised the price target to $71 from $64. The new price target represents 11.8x EV/EBITDA.

Despite SAIC boasting an 8 percent FY18 cash flow yield, Rumohr prefers Leidos and Booz Allen. The analyst highlighted Leidos' more dynamic market positions and modest 9.2x EV/EBITDA, while noting sector leader Booz Allen has "a richer technology/market mix [...] consistent bid win record and a lower 11.0x EV/EBITDA."

Shares of SAIC closed Thursday's regular trading at $69.65. In the pre-market hours Friday, the stock is down 1.39 percent to $68.68, and within the first hour of regular trading, the stock was seen at $68.48, down 1.68 percent.

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Sep 2016CitigroupMaintainsBuy
Sep 2016Drexel HamiltonDowngradesBuyHold
Sep 2016Cowen & Co.DowngradesOverweightMarket Perform

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