IGTE (MM)

We retain our Neutral recommendation on CACI International Inc. (CACI).

A solid second quarter of fiscal 2012 brought forth revenues of $973.2 million, increasing around 12% year over year while earnings came in at $1.51 per share. This easily surpassed the Zacks Consensus Estimate of $1.39 per share.

The strong sales along with the approbatory contract wins were the highlights of the quarter, which bolstered the revenues so comprehensively. There were a number of buy-back activities that the company ventured into which ameliorated overall earnings.

Cyber solutions are gaining considerable importance in today’s world due to the pervasive nature of ongoing cyber threats and attacks. Hence, the future prospects of CACI International look quite favorable, judging by the recent IT security scenario.

Making strategic acquisitions is also a regular key for profitability when it comes to CACI International. The company last acquired Oracle solutions provider Advanced Programs, LLC, which made the company even more formidable to attract government contracts.

CACI International caters primarily to the U.S. Government and its various agencies which have immense faith in the reputation of the company, awarding it with long-term multi-million dollar contracts interminably. The Department of Defense is one of the major customers of CACI International due to its system integration skills and intelligence expertise which bolster information sharing effectively among all intelligence agencies.

However, whilst government contracts give a sense of assurance, security and long-term profitability, it also makes the company vulnerably exposed to macro fluctuations. These include budget cuts, economic downturns, change in expenditure preferences etc.

In the last quarter, the Department of Defense accounted for about 79% whereas Federal Civilian Agencies accounted for around 16.3% of total revenue for the company. A budget cut is expected from the U.S. Congress Government in 2013 and this might create quite a precarious condition for CACI International owing to the fact that the company still largely relies on these government contracts.

The top-line segments have under-performed of late which might pose to be quite an onus while we look into the future. Furthermore, the company has a series of ominous competitors in the industry to grapple with including Synnex Corp. (SNX), iGate Corp. (IGTE) and Ebix, Inc. (EBIX); all of which have gained eminence for their progressive trends.

Therefore, we find it wise to maintain a sideline view on the company’s stock, thereby retaining our Neutral recommendation.

 
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