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Recent IPOs were strong performers
Defense Market Report
Exclusively for InvestorIdeas.com
By James Smith
April 02, 2007
Let’s look at how some of the defense and homeland security sector initial public offerings (IPOs) chronicled in this space have performed over the last six months or so.
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In October 2006, we reported that employee-owned Science Applications International Corporation (SAIC) had set terms for its IPO of 75 million shares at an estimated price range of US$13 to US$15 per share. SAIC priced its offering at US$15 per share on 12 October, at the high end of the range.
SAIC provides scientific, engineering, systems integration and technical services and solutions to all branches of the US military, agencies of the US Defense Department, the intelligence community, the US Department of Homeland Security and other US government civil agencies, as well as to the commercial market.
On 23 March, SAIC was trading at US$17.90, up 19.3 per cent from the offer price.
While SAIC will not announce FY4Q 2007 and full-year earnings results until 11 April, the Company posted impressive results for 3Q 2007 ending 31 October 2006.
Revenues were US$2.1 billion, up 6 per cent from US$2.0 billion in 3Q 2006. Approximately 3 percentage points of the consolidated growth was internal, or non-acquisition, growth. Operating income was US$144 million (6.7 per cent of revenue), up 36 per cent from US$106 million (5.2 per cent of revenue) in 3Q of fiscal year (FY) 2006. Net income was US$98 million, up 8 per cent from US$91 million in 3Q of FY 2006.
SAIC has also announced a series of contracts from various branches of the US military in 2007.
Stanley Inc launched its IPO of 6.3 million shares on 17 October 2006. The offering priced at US$13 per share, the mid-point between the expected range of US$12 to US$14 per share.
The Company provides IT consulting services to the US Defense Department and other government agencies.
At 23 March, Stanley traded at US$15.70, a 20.8 per cent return from the offer price.
In February 2007, Stanley reported record revenues of US$102 million for 3Q of FY2007, ended 31 December 2006. Revenues were up 48 per cent over the previous third quarter while operating income was US$3.1 million, down from US$5.4 million in the same quarter of last fiscal year. Net income for the quarter was US$1.3 million versus US$3.0 million a year ago. Decline in net income year-over-year is attributable to a US$600,000 increase in interest expense as well as the factors affecting operating income, principally acceleration of amortization of deferred compensation.
In January, Stanley was awarded a one-year base period contract with an optional five-year period of performance, with a total program ceiling value of US$21 million. At February, the Company reported a contract backlog that was up 12 per cent sequentially, 83 per cent year-over-year, to a record US$1.1 billion.
For full FY2007, ending 31 March 2007, the Company expects revenues to come in at between US$394 million and US$399 million.
Amidst warnings that the defense and homeland security markets may have topped out, these two companies have been strong performers for investors.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. James Smith is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.
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