CACI International CACI shares have plunged 25.3% in the past three months, underperforming the Zacks Computer and Technology sector and the S&P 500 index’s return of 6% and 5.4%, respectively. Shares of CACI have also underperformed the Zacks Computer - Services industry’s decline of 7.5% in the same time period.
The decline in share price can be attributed to investors’ reaction triggered by the recent Department of Government Efficiency (DOGE) initiative. The DOGE initiative is focused on downsizing the federal government’s expenditure on federal technology and software while increasing efficiency. Through this initiative, the government aims to reduce federal spending by up to $2 trillion, which could reduce contract values for defense contractors, including CACI.
Other defense contractors, including Science Applications International SAIC, Leidos Holdings LDOS and KBR Inc. KBR, are also facing the heat of this initiative. Shares of SAIC, LDOS and KBR have plunged 24.6%, 20.1% and 17.2%, respectively, in the past three months.
Once the DOGE initiative is implemented in full force, companies like CACI International, Science Applications, Leidos Holdings, KBR and other defense contractors will compete for a shrinking pool of government contracts and a reduced federal budget.
However, not everything is gloomy for CACI as the company secured several long-term contracts in 2024, which will help maintain stable revenues for the foreseeable future.
CACI 3 Months Price Performance Chart
Image Source: Zacks Investment Research
CACI's Long-Term Contracts Ensure Steady Revenue Flow
Although the DOGE initiative creates uncertainty around securing new contracts, CACI's existing contracts remain firmly in place. Throughout 2024, CACI has received multiple long-term contracts from federal agencies and the Department of Defense in particular.
Long-term contracts from government organizations, including the National Geospatial-Intelligence Agency, U.S. Southern Command Operations, U.S. Central Command, U.S. Navy, U.S. Army, U.S. Space Command and NASA will enable CACI to generate revenues for several years, adding to the predictability of future revenue streams.
CACI also received several major deals with more than $1 billion budget. These large-scale contracts include an eight-year-long contract valued at $2 billion, where CACI will deliver digital solutions technology to NASA. CACI received another contract worth $1.3 billion where it will deliver communications and IT expertise to the U.S. European Command and U.S. Africa Command.
Having these large contracts worth more than $1 billion stabilizes CACI’s business and minimizes revenue fluctuations. For fiscal 2025, CACI International anticipates revenues between $8.45 billion and $8.65 billion (midpoint $8.55 billion).
CACI expects its non-GAAP earnings per share in the range of $23.87-$24.76 for fiscal 2025. The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $23.95, indicating year-over-year growth of 13.8%.
CACI surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 12%.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
CACI Leverages Inorganic Growth to Boost Market Share
In 2024, CACI International acquired two companies to expand its expertise, gain market share and boost its top line. The two acquisitions include Azure Summit Technology and Applied Insights.
The acquisition of Azure Summit Technology brought a range of expertise onboard for CACI. This acquisition enhanced CACI’s offerings in intelligence, surveillance and reconnaissance, electronic warfare (EW) and signals intelligence.
The acquisition of Applied Insights has enabled CACI to enhance its cloud migration, adoption and transformation expertise. Moreover, Applied Insights' established relationships with the Department of Defense and Intelligence Communities were the icing on the cake for CACI.
What Should Investors Do?
Although the new reforms create an environment of uncertainty for CACI, the existing long-term contracts and large-scale deals from the federal government provide stability to its revenues. The company is also expanding its market share and expertise through acquisitions to diversify its offerings and gain from new opportunities.
The recent sell-off has caused CACI to be fairly valued at present, carrying a Zacks Value Score B. Considering all these factors, investors should retain this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
