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From the Survey: CACI International
CACI International (CACI) is a provider of information technology (IT) solutions, services, and products in North America and the United Kingdom. What may pique investors’ interest is that the United States Government accounted for approximately 95% of CACI’s 2011 revenue (fiscal year ends June 30th), making the IT provider particularly dependent on the federal government’s budget realities. Specifically, CACI offers services to the government that are predominantly focused on areas of defense, intelligence, homeland security, and IT modernization. Indeed, CACI separates revenues from the government into two different segments. Its largest client, the Department of Defense, made up 80% of fiscal 2011 revenues. Here, CACI provides services to the U.S. Army and Navy, and aids governmental operations overseas in Iraq and Afghanistan by supporting readiness, tactical military intelligence, and other communications needs. Revenues for its federal civilian agencies sector, the other 15% of government contributions, is primarily from the Department of Justice.
The remainder of its top line is derived from commercial clients (both international and domestic), and state and local governments. Overall, CACI offers a wide range of services, such as enterprise IT and network services; data, information and knowledge management services; business system solutions; logistics and material readiness services; Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance programs (C4ISR); cyber security; and integrated security and intelligence solutions.
Indeed, CACI is constantly looking for valuable bolt-on opportunities, which significantly add to the company’s profitability, and broadens its service capabilities. In the March period, CACI saw substantial revenue growth in a majority of its segments from previous acquisitions. However, this came at a cost. During fiscal 2011, CACI spent $133 million on acquisitions and another $180 million in the March of this year. Major add-ons included Pangia Technology, Paradigm Holdings, and Advanced Programs Group. Add to that, its most recent acquisition on July 2nd, Delta Solutions, the costs of which will likely be incurred in the September period of fiscal 2013.
June Was a Busy Month
CACI has been active on many fronts lately. In June, the company announced that on July 1st, Paul M. Cofoni, who had served as CACI’s President and Chief Executive Officer since 2007, would be replaced by Daniel D. Allen. Mr. Cofoni plans to retire on December 1, 2012, and he will remain with the company until that time, serving as chief advisor to its current Executive Chairman, Dr. J.P. (Jack) London. Mr. Allen was previously the company’s President of U.S. operations, and due to his promotion, John S. Mengucci is serving in place of him while concurrently performing his role as Chief Operating Officer.
In other news, CACI started repurchasing shares on June 26th, after the board of directors approved a four million share buyback program earlier that month. So far, the company has repurchased 1.3 million shares (at an average price of $50.56 per share), and expects to keep buying back shares at this accelerated rate for two more months. Indeed, this is the second set of buybacks the company has initiated during fiscal 2012. (The first one was announced in August of 2011, and completed May of 2012.) In total, this should cost more than $200 million, but less than $100 million of this amount will likely be tacked onto the $210 million already spent on buybacks in fiscal 2012. The remainder will occur in fiscal 2013 (began July 1st).
On June 6th, management released guidance for fiscal 2013; the same day the share repurchase program was announced. Guidance was well above expectations largely due to the buyback activity, which is expected to boost earnings and shareholder value. In addition, CACI expects contract awards to reach a record level of $4 billion in fiscal 2012. This includes a $20 billion multiple-award contract that enables CACI to aid the federal government with health, biomedical, and other IT solutions, and consequently, expand its healthcare IT platform. Moreover, CACI was recently awarded additional contracts, which allow the company to maintain its support for the Department of Justice, the Department of Defense, and the Navy.
Adding It All Up
Since the recession, CACI International has felt unrelenting pressure from difficult macroeconomic headwinds, which continue to be an issue. During the last quarter, shares of CACI experienced significant price movement, dropping over 30% in early June after mixed third-quarter results were released. Investors seemed somewhat disappointed when former CEO, Paul Cofoni, discussed his concerns regarding uncertainty surrounding the tightening of government spending and slower-than-anticipated procurement actions, which evidently hindered revenue growth. Consequently, management tempered its revenue expectations for fiscal 2012.
But despite the large drop in price, things have been looking up for this stock lately. The price has been increasing, albeit gradually, and investors have responded favorably to the better-than-expected fiscal 2013 guidance, the share-repurchase authority, healthy contract awards, and the recent acquisition of Delta Solutions. Thus, the price has pushed over $55 a share, and it may head higher, assuming decent earnings results and a positive economic outlook.
For a more detailed evaluation of CACI International’s business prospects and the investment merits of the stock, subscribers are encouraged to review our full page report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.