SAIC

SAIC CEO Buys $223K Despite Earnings Miss: What Does Management See?

06/07/2025 13:44

Science Applications International Corporation ($SAIC), a government IT services specialist, has been struggling with weak stock performance this year, while aggressive insider buying by executives has caught market attention. Following the June 2nd first-quarter earnings report that showed EPS of $1.92, significantly below analyst expectations of $2.13, the stock plunged 12%, yet insider purchases have continued unabated. Notably, from late March through early April, key executives including the CEO made concentrated purchases of company shares. CEO Toni Townes-Whitley bought 2,000 shares worth $223,236 on March 28th, while EVP Prabu Natarajan purchased 2,000 shares for $219,098 on the same day. These transactions occurred at price levels of $109-112, above the current trading price of $102. Founded in 1969 and headquartered in Reston, Virginia, SAIC is a mid-cap company employing approximately 24,000 people. The firm specializes in government IT services, serving major clients including the Department of Defense, NASA, Department of Homeland Security, and intelligence agencies. Operating through Defense & Intelligence and Civilian segments, SAIC provides AI solutions, digital engineering, and weapons systems support. Investors are drawn to this stable government contract-based business model. However, concerns persist regarding the company's financial health. The debt-to-equity ratio stands at 162.19%, significantly above the industry average of 100-120%, while the current ratio of 0.78 below 1.0 suggests potential short-term liquidity issues. Total debt reaches approximately $2.44 billion against cash holdings of just $47 million. Recent quarterly free cash flow turned negative at $44 million, heightening investor concerns. Operational performance also faces pressure. First quarter fiscal 2026 (ended May 2, 2025) revenue increased 2% year-over-year to $1.88 billion, but net income declined 12% to $68 million. Adjusted EBITDA margin compressed to 8.4% from 9.0% in the prior year. Particularly concerning is the Defense & Intelligence segment's operating margin deterioration to 6.8% from 7.5%. Despite these challenges, SAIC maintains a solid backlog foundation supporting stable revenue streams. Total backlog reaches $22.3 billion, with $3.3 billion in funded contracts. Recent contract wins include a $547 million two-year extension with the U.S. Department of State. The company reaffirmed fiscal 2026 revenue guidance of $7.60-7.75 billion and adjusted EPS of $9.10-9.30. Insider buying activity reflects management's belief that current share prices undervalue the company's intrinsic worth. Of 23 insider transactions over the past 12 months, 22 were purchases with only one sale. The concentrated buying during significant stock declines demonstrates strong management conviction. Market sentiment on SAIC's outlook remains mixed. Government efficiency initiatives causing contract delays and budget pressures present near-term risks, while increasing demand for AI and digital technologies could drive medium-term growth. Analysts maintain an average price target of $123, suggesting 20% upside potential from current levels. Investors appreciate SAIC's stable government contract base and dividend-paying capability (current yield 1.41%) while remaining cautious about high leverage, liquidity concerns, and slower-than-industry growth projections (3-year average of 2.7% vs. industry 6.4%).

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