Sequestration Poses Headwinds to CACI’s Near-Term Growth

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CACI International reported third-quarter results that were in line with consensus expectations. The company posted a 2% decline in sales during the quarter as sequestration cuts started taking effect. Additionally, the company’s growth was also negatively impacted as U.S stepped up troop withdrawal from Afghanistan. With sequestration further expected to have considerable impact on defense spending, we think this declining trend will persist in the near term.

However, we also believe that the company will largely be able to make up for this as it sees increased demand for its services in the fast-growing cyberspace, health care, and integrated security solutions market. During the quarter, revenue from the Department of Defense (73% of total business) declined 7% while that from civilian agencies (21% of total revenue and includes health care and cyberspace) went up 17%. Over the last few years, management has been focusing more on strengthening its nondefense businesses, and we expect this strategy to help the company. The quarterly decrease in sales impacted operating margins, which fell from 7.8% in 2012 to 7.6% in 2013.

CACI’s contract funding order during the quarter totaled $655 million, representing a book/bill ratio of 0.72 times. Budget uncertainties and sequestration risks forced various federal government agencies to delay on new awards and this adversely affected CACI’s position during the quarter. However, the company fared well if we look at its total funded orders since the beginning of fiscal 2013. During the first nine months, CACI pulled in $2.7 billion in funded orders, giving it a book/bill ratio of 0.97 times.

 

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