Player Avatar NetscribeServcs (< 20) Submitted: 3/21/2007 8:03:57 AM : Underperform Start Price: $46.38 LDOS Score: +61.09

SAIC, Inc. is a provider of scientific, engineering, systems integration, technical services and solutions to all branches of the United States military, Department of Defense (DoD), intelligence community, Homeland Security, Government civil agencies, as well as to customers in selected commercial market. It offers a range of services and solutions, including defense transformation, intelligence, logistics and product support, systems engineering and integration, research & development and commercial services.
U.S. government spending to the global war on terrorism and in transforming its military has increased ever since September 11,2001 attacks, making a favorable impact on SAIC’s business through fiscal 2005. For the reason that, since then U.S. government has increased outsourcing of information technology (IT) and other technical services from the company.
From fiscal 2002 to 2006 company’s consolidated revenue has increased at a CAGR of 15.5% to a company record of $7.8bn, of which major portion of the revenue upto 90% is generated from the government segment. Conversely, this favorable progress has slowed down in fiscal 2006 and 2007 as a result of diversion in funding toward the ongoing military deployment in Iraq and Afghanistan by U.S. government and tightening of spending in I.T. initiatives. Supporting the same, President Bush has announced a budget of 145 billion for 2008 to finance the wars in Iraq and Afghanistan in military deployment. Besides, competition for contracts with the U.S. Government is increasingly becoming intense. Also, according to management the operating margins that are lagging behind its peers would perk up in coming few years.
Company’s cash deployment strategy announced during the recent IPO roadshow would take effect only in the long run. Furthermore, increasing political pressure to reduce overall levels of government spending is negative for the company. Looking at the above factors SAIC’s stock price would enter a bearish phase.

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