Bill Loomis (firstname.lastname@example.org) is a managing director at Stifel Nicolaus. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. For additional information and current disclosures for the companies discussed herein, go to the research page at www.stifel.com.
First quarter results in the federal IT industry were generally good, but the industry kept investors on their toes the past couple of months: A big positive earnings surprise by ManTech International Corp. was followed about a month later by a big negative earnings surprise from ManTech.
Investor nervousness over higher interest rates, record oil prices and global unrest have pushed down most stock indexes and have pressured the shares of the federal IT firms.
So far this year, federal IT stocks have underperformed in the overall stock market amid concerns of growing budget deficits, slow government spending and election jitters. Added to the improving prospects for commercial IT spending, this has caused some investors to reduce their exposure to the sector.
Industry and investors sat up and took notice of CGI Group Inc.'s proposed purchase of American Management Systems Inc. and the sale of AMS' defense and intelligence group to CACI International Inc.
After commercial IT spending began slowing in 2000 and the economy weakened, federal IT services stocks began outperforming commercial IT service stocks and the broader market indexes.
Strong trends among the federal IT service companies, more signs of a turnaround in the commercial sector and net inflows of money from investors have resulted in good stock performance for both groups.
As I write this, most of the publicly traded federal IT firms have reported third-quarter results.
The publicly traded federal IT services firms have had a wild ride the past couple of months.
With the second-quarter earnings season over, investors seem more confident that commercial information technology spending has bottomed out and is improving. Several Wall Street firms have upgraded technology companies in recent weeks, which helped shares, including commercial IT service firms, hit new 52-week stock price highs.
As the reporting season for second quarter earnings comes to an end, it looks like it's been another good one for the publicly traded federal IT service companies.