SAIC, Inc. (SAI)

Defense play

Top notch government contractor trading in lower part of its typical trading range in terms of P/FCF. This company is a solid cash flow generator that tends to spend its excess cash on share repurchases and strategic acquisitions. Reasonably astute acquirer, but you know how that goes.

SAIC is in all kinds of different business areas and has its hands in a huge number of ongoing government programs. It is one of the largest platform independent service providers to the government. In other words, it doesn't deliver big weapon systems or fighting platforms, rather it works on all of them and gets its cut of the pie, no matter who wins the hardware contract, in many instances.

It is strong in ISR and IT (cyber security), which are both areas that will see budget increases in an era where many large DOD systems will begin seeing cuts. It does have some exposure to the Future Combat Systems program that will be facing anticipated funding reductions, but should be able to make it up in other growth areas. This is probably the biggest of the class of government contractors I like to call "Beltway Bandits." That is a term of endearment and just refers to the fact that they are everywhere with bodies, facilities, and people ready to write reports, scooping up the logistics, support, maintenance, and training bucks.

I believe SAIC can grow sales at high single digit rates and earnings/cash flow at rates in the low-to-mid teens practically forever. It won't be a home run and multi-bagger over a short time frame, but it is a well run company in an industry dependent on relations. It will outperform the market over at least the medium term.