Science Applications International Corp. SAIC shares have lost 7.8% in the year-to-date period, underperforming the Zacks Computers - IT Services industry, Zacks Computer and Technology sector and the S&P index’s growth of 16.7%, 34.2% and 27.8%, respectively.

SAIC stock’s dip in performance can be traced back to the temporary challenges that the company was facing due to contract transitions and improved bid selections creating revenue gaps. SAIC’s cautious outlook of fiscal 2025 revenues of $7.425-$7.475 billion is also a concern for investors. However, Science Applications is now recovering from these headwinds and is getting new contracts.

Recently, SAIC secured a prime position on the $1.8 billion Personnel and Readiness Infrastructure Support Management (PRISM) contract to support the U.S. Department of Defense (DoD). In this deal, SAIC has been assigned the task of assisting the Office of the Under Secretary of Defense for Personnel & Readiness for providing services, including technology integration, data analytics and mission support.

Science Applications’ role will enable DoD to optimize readiness, improve operational workflows and enhance strategic decision-making procedures.

Science Applications Price Performance Chart

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SAIC Gains From Its Government Client Base

Science Applications continues to prioritize the federal government market and aims to increase its market presence. In 2021, 2022 and 2023, almost all of Science Application's revenues, approximately 98%, came from contracts with the U.S. government. SAIC’s main clients include various government agencies, such as Homeland Security, NASA, Department of State, and the military branches like the Navy, Airforce and Army.

Having the Navy and other federal agencies as major clients stabilizes the business and minimizes revenue fluctuations. Also, the government projects, once sanctioned, generate revenues for several years, adding to the predictability of future revenue streams.

Science Applications also benefits from the higher spending as proposed in the latest federal government budget. The increased budget is expected to accelerate the pace of contract awards, which, in turn, will be beneficial for SAIC’s top-line growth.

Macroeconomic and Competitive Challenges

Science Applications operates in a highly competitive defense, space, intelligence and mission-critical services market that comprises players like CACI International CACI, KBR Inc. KBR and Leidos Holdings LDOS.

CACI, KBR and Leidos secure several contracts from the Department of Defense, the Department of Homeland Security and other U.S. government agencies, causing highly competitive environment in this niche industry. The pricing pressure causes low-margin government deals, affecting SAIC’s profitability.

Science Applications is also facing headwinds from rising component costs and increasing labor and logistics expenses. Moreover, recession concerns amid the ongoing macroeconomic and geopolitical tensions might lead to softened spending by government agencies. The company’s near-term prospects are weighed down by these negative factors.

What Should Investors Do?

SAIC had faced multiple revenue-related headwinds  last year. However, the company is on the path of recovery and is getting multiple contracts from the government.

Considering these factors, it is prudent to 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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