Why Science Applications International Corp (SAIC) is a Strategic Buy in a Volatile Market

In a climate of geopolitical tension and federal spending uncertainty, Science Applications International Corp (SAIC) stands out as a resilient growth story. The company's strategic pivot to mission-critical IT solutions—coupled with a $22.3 billion backlog—positions it to thrive amid procurement headwinds. Investors seeking exposure to national security priorities and digital transformation should take note: SAIC is primed to deliver outsized returns.

The Strategic Pivot: From Diversification to Precision

SAIC's recent reorganization into five customer-focused business groups marks a bold shift from its prior sector-based structure. This move sharpens focus on high-margin, mission-critical domains:
- Cybersecurity: Leading with its Trust Resilience™ platform, recognized as a Leader in IDC's 2024 MarketScape, SAIC is addressing the $173 billion cybersecurity market's demand for zero-trust architectures.
- Digital Engineering: Its ReadyOne™ software, a “Big Idea” award winner, enables rapid deployment of digital ecosystems for defense and space programs.
- Hypersonics & Space: Securing contracts like the $444 million U.S. Space Force DTAMM award underscores its role in modernizing launch infrastructure and hypersonic systems—key priorities for the Biden administration's $1.2 trillion National Defense Strategy.

This focus is paying off. In Q1 2025, SAIC secured $2.6 billion in net bookings, driving a book-to-bill ratio of 1.4—a strong indicator of sustained demand. Notably, 85% of its backlog comes from federal defense and intelligence clients, sectors with high renewal rates and inelastic budgets.

The Backlog: A Fortress of Future Revenue

SAIC's $22.3 billion total backlog (as of May 2025) is its secret weapon. While only 15% ($3.3 billion) is funded, the remaining $19.08 billion in negotiated unfunded contracts represents a pipeline of opportunities. The funded portion alone covers 1.8 years of revenue, providing stability as the company works to convert the unfunded backlog.

Key drivers include:
- $706 million in space and intelligence contracts (Q1 2025)
- The $494 million NASA recompete for safety assurance systems
- A $1.8 billion U.S. Army Aviation and Missile Center contract

The unfunded backlog's growth—from $18.4 billion to $19.08 billion in three months—signals relentless sales execution. While critics may question the “paper” value of unfunded contracts, SAIC's track record of converting 75% of backlog into revenue within five years mitigates this risk.

Resilience Amid Procurement Challenges

Despite a 9% YoY revenue decline in Q1 2025 (due to prior-year divestitures), SAIC's core metrics are strong:
- Adjusted EBITDA margins held steady at 9.0%, within guidance.
- Free cash flow remains robust at $98 million, supporting $107 million in dividends and buybacks.
- Fiscal 2025 guidance was reaffirmed: $7.35–7.50 billion in revenue and $8.00–8.20 EPS, with margins improving to 9.4–9.6% by year-end.

The company's five-year visibility from its backlog and its focus on hard-to-delay projects (e.g., hypersonics, space modernization) insulate it from short-term budget delays. Even if federal spending lags, SAIC's backlog provides a $1.8 billion annual revenue floor, creating a low-risk investment profile.

Why Buy Now? The Catalysts Ahead

Investors should act swiftly as three near-term catalysts materialize:
1. Execution of the $2.8B SOCOM SITEC 3 EOM contract (a team-led win with Peraton) will boost top-line growth starting in 2026.
2. Space Force's $444M DTAMM contract enters its ramp-up phase, contributing to $1.2B+ in annual space revenue by 2027.
3. Margin expansion is achievable as the reorganization reduces overhead and innovation investments bear fruit.

Final Call: SAIC is a Buy

With a $22.3B backlog, a strategic focus on high-priority IT solutions, and a track record of converting contracts into cash, SAIC offers a 22% total return potential over the next 18 months. Its P/E ratio of 12.5x (vs. industry average of 16x) leaves room for re-rating as margins improve.

Actionable recommendation:
- Buy SAIC at current levels (below its 52-week high of $175).
- Target price: $210 by Q4 2025, based on FY2026 EPS guidance.
- Risk: Federal budget delays or cybersecurity setbacks.

In a world where defense spending is a bipartisan priority, SAIC's mission-critical IT solutions and fortress-like backlog make it a standout investment. This is not just a stock to hold—it's a bet on the future of U.S. national security. Act now before the market catches on.