Drexel Suggests Taking Profits In SAIC, Lowers Rating To Hold

A day after Science Applications International Corp (NYSE: SAIC) reported a second-quarter earnings beat, Drexel Hamilton advised investors to lock profits. Analyst Michael French lowered his rating on the stock to Hold on valuation concerns. Currently, the shares are traded at about 12x analyst estimate of $338 million EBITDA for fiscal year 2017.

Except the top line, the brokerage pointed out that SAIC's second-quarter key metrics topped its estimates like book to bill. The company's revenue of $1.095 billion came in below the Street estimates of $1.11 billion and Drexel's $1.106 billion. The analyst does not see any upside potential in the short term, pointing out the recent spurt in the stock price.

Related Link: SAIC Shares Downgraded By Cowen As Valuation Approaches Parity

Turning toward share repurchase plans, the analyst thinks SAIC would be aggressive in the upcoming period. French pointed out that the company has already bought back shares worth $41 million, and its authorization covered three million more shares. With the available cash on hand and free cash, the company could repurchase two million shares as there is lack need to pay back its debt.

"Work on the Marine's assault vehicle will pause for a year now that the prototypes have been delivered for testing. However, production of prototypes for the Corps' combat vehicle is expected to pick up, and replace AAV sales, ahead of a down-select decision next summer," the analyst told his clients in a research note.

At time of writing, SAIC was down 3 percent at $67.56.

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