Stock Analysis & Valuation Science Applications International Corporation (0V9N.L)

• Previous Close: £101.37
• Sector Valuation Confidence Level: Low

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	61.70	-39
Intrinsic value (DCF)	44.63	-56
Graham-Dodd Method		n/a
Graham Formula	46.80	-54

Strategic Investment Analysis

Company Overview

Science Applications International Corporation (SAIC) is a leading provider of technical, engineering, and enterprise IT services, primarily serving U.S. government agencies, including the Department of Defense, NASA, and the intelligence community. Founded in 1969 and headquartered in Reston, Virginia, SAIC specializes in IT modernization, cloud migration, cybersecurity, and mission-critical engineering solutions. The company operates in the high-growth Software & IT Services sector, leveraging its deep expertise in defense and federal IT infrastructure to deliver end-to-end services, from system design to sustainment. With a market cap of $5.59 billion and a diversified client base across military and civilian agencies, SAIC is well-positioned to capitalize on increasing federal IT spending and modernization initiatives. Its strong cash flow generation and stable government contracts provide resilience in uncertain economic climates.

Investment Summary

SAIC presents a compelling investment case due to its stable government-backed revenue streams, strong cash flow ($494M operating cash flow in FY 2024), and consistent profitability (net income of $362M). The company’s low beta (0.545) suggests lower volatility compared to broader markets, making it attractive for risk-averse investors. However, risks include high dependence on U.S. federal contracts (subject to budget fluctuations) and significant debt ($2.41B). The dividend yield (~2.6% based on $1.48/share) adds income appeal. Investors should monitor federal IT spending trends and SAIC’s ability to expand commercial or international contracts to diversify its revenue base.

Competitive Analysis

SAIC’s competitive advantage lies in its entrenched relationships with U.S. defense and federal agencies, offering mission-critical IT and engineering services that require high security clearances and domain expertise. Unlike commercial IT firms, SAIC’s focus on classified programs creates high barriers to entry. However, it faces intense competition from larger defense contractors (e.g., Lockheed Martin) with broader portfolios and smaller agile firms specializing in niche IT solutions. SAIC differentiates through its ‘asset-light’ model, avoiding large-scale manufacturing, which allows flexibility in bidding for IT services contracts. Its weakness is limited international exposure compared to peers like Booz Allen Hamilton, which has allied government contracts. SAIC’s growth depends on winning recompetes of existing contracts and expanding into adjacent areas like AI/ML and space systems. The company’s mid-tier size may limit its ability to compete for mega-projects against giants like Northrop Grumman but allows agility in specialized IT modernization deals.

Major Competitors

• Booz Allen Hamilton (BAH): Booz Allen Hamilton is a direct competitor in U.S. government IT services, with stronger intelligence community ties and higher-margin consulting work. It has a larger market cap ($18B+) and more diversified commercial exposure. However, SAIC’s deeper engineering capabilities in defense systems give it an edge in hardware-integrated projects.
• Leidos Holdings (LDOS): Leidos is a larger peer ($12B market cap) with broader health and civil IT solutions alongside defense work. It outperforms SAIC in scale and international contracts but carries higher debt. SAIC’s focus on high-end technical services allows it to maintain better margins in niche areas like space and maritime systems.
• Lockheed Martin (LMT): Lockheed Martin dominates defense manufacturing but overlaps with SAIC in IT services for classified programs. Its vast resources and prime contractor status make it a threat, but SAIC’s pure-play IT focus allows faster adaptation to emerging tech like cyber and cloud without manufacturing overhead.
• CACI International (CACI): CACI competes closely in intelligence and defense IT, with stronger growth in cyber and data analytics. SAIC’s larger scale ($7.47B revenue vs. CACI’s $6.7B) and engineering depth provide an advantage in integrated missions, though CACI’s acquisitions have expanded its capabilities in electronic warfare.