CACI International: A Strategic Play in National Security Growth

The global defense sector is undergoing a seismic shift, driven by escalating geopolitical tensions, technological innovation, and a renewed focus on national security. In this evolving landscape, CACI International (NYSE: CACI) stands out as a compelling investment opportunity, leveraging its robust portfolio of long-term defense contracts, recurring revenue visibility, and strategic alignment with U.S. defense priorities. With a market capitalization that undercuts its intrinsic value and a strong track record of profitability, CACI offers asymmetric upside potential for investors seeking exposure to a rising sector.

Long-Term Contracts: The Bedrock of Stability

CACI's business model is anchored by multi-year, high-value contracts with the U.S. Department of Defense (DoD) and intelligence community. In Q3 2025, the company secured $2.5 billion in new awards, including a $434 million task order for digital financial management solutions and a $400 million modification for mission-essential systems. These contracts, often structured as cost-plus-fee or fixed-price agreements, provide consistent revenue streams and reduce operational volatility.

Notably, CACI's $31.4 billion backlog—up 9.8% year-over-year—offers a clear roadmap of future earnings. With 90.3% of its revenue derived from prime contracts (versus subcontracts), the company maintains greater control over performance and margin preservation. This prime contractor status, combined with a 1.2x book-to-bill ratio, underscores its ability to sustain growth even in a competitive market.

Recurring Revenue and Margin Resilience

CACI's financial performance in Q3 2025 demonstrates its ability to balance top-line growth with margin discipline. Despite a 3% decline in net income year-over-year, adjusted net income rose 8.5%, driven by higher operating income and share repurchases. Free cash flow surged 84.3% to $187.9 million, reflecting efficient working capital management and a 40-basis-point improvement in EBITDA margins to 11.7%.

The company's 60.7% reliance on cost-plus-fee contracts ensures predictable cash flows, while its focus on software-defined solutions and AI-driven platforms enhances scalability. This recurring revenue model, coupled with a debt-to-equity ratio of 0.94 (below industry averages), positions CACI to reinvest in innovation and return capital to shareholders through dividends and buybacks.

Geopolitical Tailwinds and Sector Tailwags

The U.S. defense budget for FY 2025 is $895 billion, with a clear emphasis on modernization, cyber resilience, and space capabilities. CACI's expertise in signals intelligence (SIGINT), electronic warfare (EW), and cybersecurity aligns directly with these priorities. For instance, its $93 million spectrum superiority contract and $143 million EW system enhancement reflect the DoD's push to counter emerging threats.

Geopolitical instability—exemplified by conflicts in Eastern Europe, the Indo-Pacific, and the Middle East—has driven global defense spending to $2.4 trillion in 2023, with further growth expected in 2025. CACI's recent $638 million in intelligence community awards underscores its role in addressing these challenges, particularly as agencies prioritize digital transformation and AI integration.

Undervaluation and Analyst Optimism

Despite its strong fundamentals, CACI trades at a 21.6x P/E ratio, below the 27.2x average for the Industrials sector. Its 14.2x EV/EBITDA and 2.7x PEG ratio suggest the stock is undervalued relative to growth prospects. Analysts have raised price targets multiple times in 2025, with a $514.83 average target (12.7% upside from current levels) and a high estimate of $640.

The 13 Wall Street analysts covering CACI have issued 10 “Buy” ratings, including a “Strong Buy” from Stifel, reflecting confidence in its strategic initiatives and margin expansion. Notably, the stock is trading at a 46.6% discount to its DCF-derived fair value of $877.95, presenting a compelling entry point for long-term investors.

Risks and Considerations

While CACI's government-centric model offers stability, it is not without risks. Fiscal constraints, such as potential sequestration under a continuing resolution, could impact DoD funding. Additionally, rising interest rates and inflation may pressure margins. However, CACI's strong backlog, recurring revenue streams, and technological differentiation mitigate these risks.

Conclusion: A High-Conviction Play

CACI International is a prime example of a company that combines defensive cash flow with asymmetric upside in a sector poised for sustained growth. Its long-term contracts, prime contractor status, and alignment with national security priorities create a durable competitive moat. With a valuation that underprices its intrinsic value and a business model designed to thrive in a high-defense-spending environment, CACI offers a rare combination of stability and growth potential.

For investors seeking to capitalize on the convergence of geopolitical tailwinds and technological innovation, CACI represents a high-conviction opportunity. As the U.S. and its allies continue to prioritize defense modernization, CACI's role as a trusted partner in national security will only grow in importance—and in value.