SAICs Earnings Drop Masks Optimism on Margins

Science Applications International (SAIC) reported mixed results for fiscal 2026 Q4, with revenue and earnings declines but reaffirmed guidance for 2027. The company faces near-term headwinds from procurement delays and recompete losses, though leadership remains optimistic about margin expansion and operational efficiency gains.

Revenue

The total revenue of Science Applications International decreased by 4.8% to $1.75 billion in 2026 Q4, down from $1.84 billion in 2025 Q4.

Earnings/Net Income

Science Applications International's EPS declined 5.4% to $1.93 in 2026 Q4 from $2.04 in 2025 Q4. Meanwhile, the company's net income declined to $85 million in 2026 Q4, down 13.3% from $98 million reported in 2025 Q4. The Company has sustained profitability for 13 years over the corresponding fiscal quarter, reflecting stable business performance. Despite the earnings contraction, the company’s long-term profitability underscores operational resilience.

Post-Earnings Price Action Review

The strategy of buying Science Applications International (SAIC) shares after a revenue drop quarter-over-quarter on the financial report release date and holding for 30 days resulted in poor performance. The strategy had a CAGR of -8.29% and an excess return of -46.28%, significantly underperforming the benchmark return of 30.31%. The strategy also had a high maximum drawdown of 37.52% and a Sharpe ratio of -0.23, indicating significant risk and losses.

CEO Commentary

James Reagan, CEO & Director, emphasized SAIC’s focus on aligning its portfolio with high-margin, mission-critical work, including fixed-price contracts and innovation-driven programs. He noted FY 2026 margin of 9.7% despite top-line challenges from procurement delays and recompete losses, calling the 10% adjusted EBITDA margin guidance for FY 2027 a “first time the company is guiding to double-digit margin.” Reagan highlighted strategic shifts, such as hiring a Chief Growth Officer to prioritize business development, reducing exposure to low-margin enterprise IT, and investing in AI and classified network capabilities. He expressed optimism about FY 2027, stating, “we’re committed to building on our strong foundation to deliver meaningful results,” while acknowledging organic contraction due to recompete losses. The tone balanced caution on near-term revenue pressures with confidence in margin expansion and operational efficiency gains from cost reductions and transformation initiatives.

Guidance

SAIC reaffirmed FY 2027 revenue guidance of $7 billion to $7.2 billion, reflecting 2%–4% organic contraction due to $400 million in recompete losses, partially offset by new business wins. Adjusted EBITDA is targeted at $705 million–$715 million, implying 9.9%–10.1% margins, with free cash flow of at least $600 million. The company expects FY 2027 submissions of $25 billion–$28 billion, prioritizing higher-margin programs. Leadership outlined $100 million in cost reduction targets and a multiyear enterprise transformation to improve agility and innovation. Qualitative guidance included confidence in margin expansion from disciplined bidding, fixed-price contracts, and a supportive defense budget environment, though near-term revenue challenges from recompetes and procurement delays remain.

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