Why CACI is a High-Conviction Buy: A National Security Tech Compounder with Strategic Rail-Building and Free Cash Flow Discipline

In an era where national security and technological innovation are inextricably linked, CACI International Inc. (CACI) has emerged as a standout player in the defense/tech services sector. The company's recent financial performance, strategic acquisitions, and disciplined capital allocation position it as a compelling long-term investment. For investors seeking a compounder with a clear line of sight to sustained growth and free cash flow generation, CACI's execution in aligning with U.S. defense priorities and its software-driven innovation model warrant high conviction.

Financial Fortitude: A Model of Free Cash Flow Discipline

CACI's fiscal 2025 results underscore its ability to balance aggressive revenue growth with capital efficiency. Annual revenues surged to $8.6 billion, a 13% year-over-year increase, while net income reached $499.8 million and diluted EPS hit $22.32, both up 20% according to Q4 results. More impressively, the company generated $139.1 million in free cash flow during the fourth quarter alone, with management projecting even stronger cash flow in FY2026 driven by working capital optimization and revenue acceleration. This discipline is critical in a capital-intensive sector, where reinvestment in high-margin capabilities and stock buybacks such as the $150 million repurchase in FY2025 reinforce shareholder value.

The company's $31.4 billion backlog as of June 30, 2025-$4.2 billion of which is funded-provides a durable runway for cash flow generation. This backlog, coupled with a 12.6% year-over-year revenue increase in FY2025, reflects CACI's ability to secure and execute on long-term contracts in high-priority areas like signals intelligence and cyber modernization according to Q4 results.

Strategic Rail-Building: Software-Defined Innovation and Targeted Acquisitions

CACI's growth is not merely a function of organic revenue gains but a result of deliberate strategic investments. The company has completed three significant acquisitions in recent years, including Azure Summit Technology ($1.28 billion) and Applied Insight, which have expanded its capabilities in cloud migration, signals intelligence (SIGINT), and space technology as detailed in strategic analysis. These moves align with the Department of Defense's push for commercial software solutions and consolidated IT infrastructure, positioning CACI to capitalize on multiyear modernization budgets according to Washington Technology.

A key differentiator is CACI's focus on software-defined technology. For instance, its $79 million task order for the U.S. Army to detect and defeat electronic warfare (EW) threats leverages RF spectrum expertise and agile software development to enhance interoperability in EW systems. Similarly, the company's CrossBeam® optical communication system, deployed in NASA's Deep Space Optical Communications experiment, highlights its ability to pioneer cutting-edge solutions for both defense and civilian applications as detailed in strategic analysis. This innovation-centric approach not only secures high-margin contracts but also future-proofs CACI against obsolescence in a rapidly evolving tech landscape.

Market Positioning: A National Security Tech Compounder

CACI's dominance in niche but critical areas of national security-such as spectrum superiority, cyber network modernization, and advanced space communication-creates a moat against competitors. The company's FY2025 contract awards, totaling $10 billion, include a $500 million task order for signals intelligence and electronic warfare systems and a $434 million award for digital financial management solutions for an intelligence community customer according to annual report. These wins reflect the trust placed in CACI's technical expertise by agencies with stringent performance requirements.

Internationally, CACI is expanding its footprint, securing $169.1 million in Canadian contracts for counter-uncrewed aircraft systems. This diversification reduces reliance on any single market while tapping into global defense spending trends. Meanwhile, its backlog of $31.4 billion-nearly triple its FY2025 revenue-signals robust demand and operational resilience in a volatile macro environment according to Q4 results.

Looking Ahead: A Path to Sustained Outperformance

CACI's FY2026 guidance, which anticipates stronger free cash flow and revenue growth, is underpinned by its ability to invest ahead of customer needs. As stated by the company, its "focus on software innovation and rapid prototyping" ensures it remains at the forefront of defense tech according to annual report. With the U.S. government allocating over $800 billion to defense in FY2025 and prioritizing AI, space, and cyber capabilities, CACI's software-driven model is uniquely positioned to compound value.

For investors, the combination of disciplined capital returns, strategic acquisitions, and a backlog of high-margin work creates a compelling case for long-term ownership. CACI is not just a beneficiary of the current defense boom-it is a builder of the infrastructure that will define national security in the 21st century.