Some Analysis of SAIC’s Common Stock

by: Matthew Potter
April 21, 2008

Category: Editorial, Industry Analysis, SAIC, SETA | RSS 2.0

As a recent GAO report highlighted the Department of Defense invests a great deal in Science, Engineering, Technical and Analysis (SETA) contracts. These contracts, and contractors, are most known as working with the military acquisition offices to provide necessary support. There are also SETA contracts with IT, testing, engineering, safety and pretty much any area that the DoD and Services are involved in. It is a large business employing thousands.

There are companies that are solely SETA providers and they range from employing a single person to those employing thousands. Many of the large defense contractors who specialize in the development and production of hardware have SETA arms. It is not only in the traditional areas of SETA support that work is performed. CACI (CACI) provides support for US intelligence services to include actual interrogators if you remember some of the past news stories.

SAIC (SAI), though, is the power house when it comes to SETA and other support contracts for DoD. The company had revenues of $8 B in 2007, and is expected to grow in 2008. SAIC has consistently been in the top 10 of US defense contractors based on contracts awarded. This puts it in the league with Boeing, Northrop Grumman, BAE and so on. SAIC is a recent public company as for the majority of its history it was employee owned. When it did this it created two classes of stock, common and Class A. The Class A is held by employees and former employees and can only be traded among themselves and their families. It also occasionally pays a special dividend.

You would think with financial performance like that SAI would be a stock to grow with. Unfortunately the performance of the common stock has not been what you would expect since the initial offering in the fall of 2006. It has traded in a range of $16 to $21 the last year, and really has not gained much from its IPO. The stock also does not pay a dividend. Despite the trend in the company’s performance there is little to recommend a buy of this stock. Heck, if you bought it at the right point a sell might be in order. All-in-all for its sector and potential this stock is a disappointment.

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