Quarterly reports: Firms hit their targets

Market Share | Financial views of a competitive environment

With the public federal information technology
services firms having reported results for the quarter
ended Dec. 31, there have been some noteworthy
trends. Contract awards have generally been lighter
than last quarter, given strong awards from the previous quarter.
However, I anticipate better contract award activity in the next few
quarters now that the fiscal 2008 budgets have been passed.

The president released his fiscal 2009
budget request to Congress, and it was modestly
better than expected for federal IT services
firms. The IT budget request represents
an increase of 3.8 percent, with 2.3 percent
for defense IT spending and 5.2 percent for
civilian-agency IT spending.

The Office of Management and Budget
also released final enacted 2008 federal IT
spending numbers, which showed total 2008
federal IT spending up 4.2 percent, defense
up 2.0 percent and civilian-agency IT spending
up 6.3 percent. As expected, IT continues
to lose budget share to overall fiscal 2009
defense spending, although the pace is slowing
as overall defense spending growth slows.

CACI International Inc. reported earnings
per share (EPS) of 63 cents for the quarter
ended Dec. 31, in line
with investor expectations,
and organic growth
of 11 percent. Its operating
margin of 6.6 percent
was down from 7.8 percent in the year-ago
period, and contract awards were down 10
percent compared to a year ago. SRA
International Inc. reported EPS of 30 cents for
the quarter, a penny ahead of investor expectations,
and organic growth of 3 percent. Its
operating margin of 7.8 percent increased from
6.9 percent in the year-ago period, and contract
awards were up 17 percent year-over-year.

Stanley reported EPS of 29 cents for the
quarter, in line with investor expectations,
and organic growth of 34 percent. Its operating
margin of 8.3 percent increased from 3
percent in the prior period, which included a
charge, and contract awards were down 60
percent year-over-year. SI International Inc.
reported EPS of 39 cents for the quarter, in
line with investor estimates, and organic
growth of 7 percent. Its operating margin of
7.8 percent was down from 9.6 percent in
the previous period, and contract awards
were down 25 percent from a year ago.

NCI Inc. had solid results, with 11.5 percent
organic revenue growth and EPS of 25
cents, a penny higher than investor expectations.
Its operating profit margin expanded
to 7.4 percent from 7 percent a year ago, and
contract wins were up to $122 million from
$77 million a year ago.

ManTech International Corp. had the
most surprising report, showing better-than-expected
growth and margins, although contract
awards were lower year-over-year.

ManTech reported preliminary 2007 EPS of
61 cents for the quarter that ended Dec.
31, ahead of investor expectations of 55
cents, and organic growth of 28 percent.
Its operating margin of 8.6 percent was
up from 7.7 percent in the year-ago period,
and contract awards were down 33
percent year-over-year.

Several companies suffered 10 percent
or greater drops in their stock prices following
their fourth-quarter 2007 earnings
reports as investors expected better outlooks.
Investors began rotating into this
group last August ? when the subprime
crunch and economic slowdown became
more evident ? as a way to reduce exposure
to these segments. Unfortunately, it appears a
lot of these new investors had unrealistic
growth expectations. As a result, after the
public federal IT services firm stocks were up
29 percent last year,
they are now down
8 percent so far this

Bill Loomis (wrloomis@stifel.com) 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,
please write to: Stifel Nicolaus, One South St.,
Baltimore, MD 21202, Attn: Research

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