On Friday, TD Cowen showed confidence in Science Applications (NASDAQ:SAIC) International Corp. (NASDAQ: SAIC) by increasing the price target from $145.00 to $155.00, while reiterating a Buy rating on the stock. The firm anticipates that the company will see an uptick in revenue growth for FY 26, driven by the progression of recent contract wins. These contracts include DTAM, GMASS, TCloud, NORAD Night, and CBC2, which are expected to continue contributing to the company's revenue stream.
The analyst from TD Cowen also noted that the negative impact of recompete losses and contract sunsets is projected to decrease significantly. After affecting the company's financials by 5.5% in FY25, these factors are expected to drop to a range of 1.0-1.5% in FY26, based on the current bid decisions. This reduction in headwinds is likely to aid the acceleration of revenue growth into SAIC's targeted range of 3-5%.
In addition to revenue growth, Science Applications is also expected to see an improvement in profitability. The adjusted EBITDA margin is forecasted to edge up from the estimated 9.4% in FY25. This is attributed to a shift in the backlog mix toward higher-margin civil work, which should contribute to better financial performance.
The firm further projects that the adjusted diluted earnings per share (EPS) for FY26 could hit the company's goal of $9.00 per share. This is in line with Science Applications' financial targets and is supported by a forecast of free cash flow (FCF) of $520 million, or $10.50 per share. The analyst's outlook is based on the current trajectory of the company's financial and operational performance.
InvestingPro Insights
Adding to the positive outlook from TD Cowen, Science Applications International Corp. (SAIC) also showcases a strong financial position according to recent InvestingPro data. The company's market capitalization stands at a robust $6.93 billion, and it is trading at a P/E ratio of 23.33, indicating a reasonable valuation relative to near-term earnings growth. Notably, SAIC's PEG ratio, which measures the price of a stock to its expected earnings growth rate, is low at 0.33 for the last twelve months as of Q1 2025, suggesting potential for investment value.
InvestingPro Tips highlight that SAIC has a history of rewarding shareholders, with high shareholder yield and consistent dividend payments for 12 consecutive years. The stock's recent performance has been strong, with a return of 12.64% over the last month and 16.19% over the last three months. Furthermore, SAIC's management has been actively buying back shares, a sign of confidence in the company's future prospects. These factors combined with the stock's low price volatility provide a compelling case for investors considering SAIC. For those looking for more insights, there are 11 additional InvestingPro Tips available on the platform.
While the company is navigating through some challenges with weak gross profit margins, as indicated by the 11.7% gross profit margin for the last twelve months as of Q1 2025, the overall financial health and stock performance of SAIC appear to align with the optimistic analysis provided by TD Cowen.
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