With A -20% Earnings Drop, Is Science Applications International Corporation’s (NYSE:SAIC) A Concern?

After looking at Science Applications International Corporation’s (NYSE:SAIC) latest earnings update (01 November 2019), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings.

See our latest analysis for Science Applications International

How Well Did SAIC Perform?

SAIC’s trailing twelve-month earnings (from 01 November 2019) of US$158m has declined by -20% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 5.7%, indicating the rate at which SAIC is growing has slowed down. Why is this? Well, let’s take a look at what’s occurring with margins and whether the rest of the industry is facing the same headwind.

NYSE:SAIC Income Statement, January 30th 2020
NYSE:SAIC Income Statement, January 30th 2020

In terms of returns from investment, Science Applications International has fallen short of achieving a 20% return on equity (ROE), recording 12% instead. Furthermore, its return on assets (ROA) of 5.1% is below the US IT industry of 7.3%, indicating Science Applications International’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Science Applications International’s debt level, has declined over the past 3 years from 20% to 11%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 134% to 146% over the past 5 years.

What does this mean?

Though Science Applications International’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors influencing its business. I suggest you continue to research Science Applications International to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for SAIC’s future growth? Take a look at our free research report of analyst consensus for SAIC’s outlook.
  2. Financial Health: Are SAIC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 01 November 2019. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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