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CACI Gains from Expanding TAM, Competition Woes Persist

On Jun 20, we issued an updated research report on CACI International Inc. CACI.

The company provides IT applications and infrastructure to improve communications and secure the integrity of information systems and network. It is a leader in IT outsourcing for the U.S. federal government.

CACI International recently provided impressive guidance for fiscal 2019 on the back of improving budget environment and expanding total addressable market.

For fiscal 2019, revenues are expected in the range of $4.55-$4.75 billion. Net income is expected in the range of $230-$240 million. Earnings per share are expected in the range of $8.98- $9.38.

Factors Influencing the Stock

A healthy relationship with the Department of Defense (DoD) and exposure to expanding DoD and Department of Homeland Security budgets are key growth catalysts for CACI International.

The company has a large pipeline of new projects and continues to win deals at regular intervals. These back-to-back contract wins are the key catalysts driving the company’s success. Furthermore, having the government as a major client lends stability to the business and moderates fluctuations in revenues.

CACI International remains focused on the federal government marketplace and eyes more market share. The company intends to drive operational excellence by intensively focusing on its organic and inorganic growth strategy and strengthening its existing customer relationships while building newer ones. In addition, the company anticipates to significantly benefit from its cost reduction program.

However, CACI International, either a prime contractor or a subcontractor, derives a significant portion of total revenues from the U.S. federal government. Evolving rules and regulations remain a significant impediment to margin growth.

Additionally, it faces competition from major players in the industry like CGI Group, Inc., SYNNEX Corporation, ManTech International Corporation and Sapient Corporation.

Hence, the company has to continuously invest in value drivers that act as a hedge against competition. These increase its operating costs and reduce the profitability of this Zacks Rank #3 (Hold) stock.

Stocks to Consider

Some better-ranked stocks in the broader technology sector include NVIDIA Corporation NVDA, Western Digital WDC and Micron MU, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA and Western Digital have long term-expected EPS growth rate of 10.3% and 19%, respectively.

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