Jefferies cuts Science Applications target to $145 on margin concerns
SAIC
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On Tuesday, Jefferies, a global investment banking firm, adjusted its outlook on Science Applications (NASDAQ:SAIC) International Corp (NASDAQ: SAIC), a prominent provider of scientific, engineering, and technology applications. The firm reduced the stock’s price target from $150.00 to $145.00 but opted to maintain a Hold rating on the shares.
The revision followed Science Applications’ fiscal year fourth quarter results, which ended in January. The company reported a robust top-line growth of 7.7% on an organic basis, surpassing the 2% growth that was anticipated. Despite the strong revenue performance, the stock experienced a 10% decline due to concerns over lower profit margins and uncertainties related to a strategic shift within the company.
Looking forward, the firm now anticipates fiscal year 2025 margins to settle at 9.3%, a slight decrease from the previous expectation of 9.5%. This adjustment is attributed to a 20 basis point investment aimed at potentially enhancing revenue over the next 12 to 18 months. Moreover, Jefferies highlighted that every 2 percentage points of growth in fiscal year 2026 could add $2 to the company’s share value.
The analyst from Jefferies pointed out that Science Applications’ free cash flow yield stands at 8.4%, which represents a discount of approximately 20% relative to its industry peers. This discount is deemed justifiable considering the company’s growth trajectory is estimated to be 3 percentage points lower than that of its competitors.
