Science Applications International Corp Valuation – July 2018 $SAIC

Company Profile (excerpt from Reuters): Science Applications International Corporation (SAIC), incorporated on February 1, 2013, is a provider of technical, engineering and enterprise information technology (IT) services. The Company provides its services primarily to the United States Government, including the Department of Defense (DoD), the intelligence community and federal civilian agencies. The Company provides engineering, systems integration and information technology offerings for government projects, and offers a range of services with a targeted emphasis on higher-end, differentiated technology services.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SAIC – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,447,240,116 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 37700.00% Pass
6. Moderate PEmg Ratio PEmg < 20 22.54 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.89 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.13 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $3.62
MG Growth Estimate 15.00%
MG Value $139.34
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $52.48
MG Value based on 0% Growth $30.76
Market Implied Growth Rate 7.02%
Current Price $81.57
% of Intrinsic Value 58.54%

Science Applications International Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.58 in 2015 to an estimated $3.62 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.02% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Science Applications International Corp revealed the company was trading above its Graham Number of $26.35. The company pays a dividend of $1.24 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 22.54, which was below the industry average of 45.08, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-18.57.

Science Applications International Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$18.57
Graham Number $26.35
PEmg 22.54
Current Ratio 1.34
PB Ratio 10.89
Current Dividend $1.24
Dividend Yield 1.52%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2018
Total Current Assets $930,000,000
Total Current Liabilities $695,000,000
Long-Term Debt $971,000,000
Total Assets $2,061,000,000
Intangible Assets $1,037,000,000
Total Liabilities $1,736,000,000
Shares Outstanding (Diluted Average) 43,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.20
Jan2018 $4.02
Jan2017 $3.12
Jan2016 $2.47
Jan2015 $2.91
Jan2014 $2.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.62
Jan2018 $3.21
Jan2017 $2.58
Jan2016 $2.05
Jan2015 $1.58
Jan2014 $0.76

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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