Science Applications International (SAIC), a major U.S. government contractor, lifted its profit outlook for fiscal 2027 after reporting a stronger-than-expected quarter. The company said demand from federal customers remains steady, helping it beat analyst estimates even as earnings dipped.
Quarterly results beat expectations
For the three months ended July 31, SAIC reported revenue of $1.88 billion, up 6% from the same period last year. That growth was driven by a 5.3% increase in organic revenue, which strips out the impact of acquisitions or divestitures. The company also ended the quarter with an estimated backlog of $22.1 billion—work that is under contract but not yet delivered.
Adjusted earnings per share (EPS), which excludes one-time items, came in at $3.01. That was down 17% from a year earlier, but it comfortably beat the $2.31 that analysts had expected. The decline in EPS was likely due to higher costs or investments, though the company didn't specify in the brief.
Management pointed to a recompete win rate above 90% as evidence that it is successfully holding onto existing contracts. Recompetes are when the government re-bids a contract that SAIC already holds, and a high win rate means the company is retaining its revenue base.
Why this matters for investors
For everyday investors, SAIC's results offer a window into the health of government spending on technology and consulting services. As a contractor, SAIC's fortunes are tied to federal budgets and the government's willingness to outsource work. A strong backlog and high recompete win rate suggest that demand is durable, which can support future revenue.
The raised outlook is a positive signal. SAIC now expects adjusted EPS for fiscal 2027 to be between $10.65 and $10.75, up from its previous guidance. That implies management is confident that the current momentum will continue.
However, investors should note that adjusted EPS fell year over year, even though revenue grew. That could indicate margin pressure or higher costs, which is something to watch in coming quarters. The company's ability to convert its backlog into profitable work will be key.
In the broader market, other companies have also recently updated their outlooks. For example, Ulta Beauty raised its sales forecast on strong demand, while Ooma shares jumped after an earnings beat. These moves highlight that corporate guidance can be a powerful driver of stock prices.
What to watch next
Investors will likely focus on SAIC's ability to maintain its recompete win rate and win new business. The company operates in a competitive market, with rivals like Leidos and Booz Allen Hamilton also vying for government contracts. Any changes in federal spending priorities could affect SAIC's growth.
Another factor is the pace of contract awards. A large backlog is good, but converting that into revenue depends on the government's procurement process, which can be slow and unpredictable.
For those considering SAIC as an investment, it's important to understand that government contractors can be sensitive to political and budgetary shifts. But a strong backlog and high win rate provide some cushion.
As always, past performance is not a guarantee of future results. Investors should do their own research and consider how SAIC fits into their overall portfolio.
