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On Friday, Cantor Fitzgerald reaffirmed a neutral stance on shares of Science Applications (NASDAQ:SAIC) with a consistent price target of $120. The firm's analysis utilized a balanced methodology, incorporating both enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and free cash flow (FCF) yield, each accounting for half of the valuation, against fiscal year 2026 estimated figures. Currently trading at $112.96, SAIC's EV/EBITDA ratio stands at 11.08x, with InvestingPro analysis suggesting the stock is currently undervalued based on its comprehensive Fair Value model.
The firm's analyst, Colin Canfield, noted that while Science Applications has experienced price fluctuations, it continues to trade at a discount compared to its peer group, with a P/E ratio of 14.77x. Canfield attributed this valuation to potential challenges that the company may face. Among the concerns highlighted were the potential for slower growth in government budgets, particularly in the Civil and Health sectors, and obstacles related to the company's exposure to Civil growth and its efforts to secure new work in artificial intelligence (AI) and cybersecurity. Despite these challenges, InvestingPro data reveals that 5 analysts have recently revised their earnings upwards for the upcoming period, suggesting potential optimism about the company's prospects.
Canfield elaborated on the risks for Science Applications, which include the transition from cost-plus to fixed-price government contracts, execution risks associated with scaling projects in space and undersea work, and the impacts of changes in the mix of Department of Defense spending, with a specific emphasis on the Army's spending patterns. While the company faces these challenges, it maintains a strong market position with annual revenue of $7.48 billion and has demonstrated commitment to shareholder returns through consistent dividend payments for 13 consecutive years.
The analysis by Cantor Fitzgerald suggests that these factors may limit Science Applications' ability to command a higher market premium. The firm's neutral rating indicates a cautious outlook on the stock's potential for price appreciation, reflecting the balance of growth prospects against the identified risks.
Science Applications International Corporation, operating in the government services industry, often deals with the intricacies of government contracting, which can impact its financial performance and stock valuation. The company's ability to navigate the outlined challenges will be crucial in determining its future financial health and stock performance.
In other recent news, Science Applications International Corp (SAIC) reported strong fourth-quarter earnings for fiscal year 2025, surpassing analyst expectations. The company achieved an earnings per share (EPS) of $2.57, exceeding the forecasted $2.08, and generated revenue of $1.84 billion, above the anticipated $1.81 billion. This represents a 6% year-over-year increase in revenue, contributing to a full-year revenue of $7.48 billion and 3.1% organic growth. Looking ahead, SAIC has issued positive guidance for fiscal year 2026, projecting revenue between $7.6 billion and $7.75 billion, with an expected EBITDA margin of 9.4% to 9.6%.
Additionally, UBS recently raised SAIC's price target from $123 to $126, maintaining a Neutral rating. The firm acknowledged that while the Government IT sector still faces risks, the environment is stabilizing. SAIC's outlook suggests a potential 1.2X book-to-bill ratio in the first half of fiscal year 2026, indicating possible mid-single-digit organic growth in fiscal year 2027. Despite these developments, UBS remains cautious due to uncertainties related to recompetes and pipeline conversion.
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