Science Applications International (SAIC): A Compelling Buy in Government Tech with Improving Metrics and Insider Backing

Science Applications International Corporation (NASDAQ: SAIC) is positioned as a compelling investment opportunity in the government technology sector, driven by improving profitability metrics, robust government contracts, and strategic insider buying. Despite recent stock price volatility, the company's fundamentals suggest a strong rebound potential. Here's why investors should take note.

ROCE: A Turning Point for Efficiency Gains

Return on Capital Employed (ROCE) measures how effectively a company generates profits from its capital. While SAIC's ROCE dipped slightly to 3.5% in Q1 2025 from 4.07% in Q1 2024, the decline reflects short-term headwinds rather than long-term weakness. The drop in operating income (to $131M from $157M) was due to contract completions and the prior-year divestiture of its Supply Chain Business. However, capital employed also declined (to $3.74B from $3.85B), narrowing the gap between capital and profitability.

Looking ahead, management's strategic initiatives—such as reorganizing into five customer-focused business groups, launching an Innovation Factory for digital transformation, and expanding its leadership in zero-trust cybersecurity (via its Trust Resilience™ platform)—are designed to boost efficiency. With a $23.6B backlog (including $3.5B funded) and a 1.4 book-to-bill ratio, SAIC is well-positioned to drive margin expansion in the coming years. By 2026–2027, management expects “accelerated returns” from these investments, suggesting ROCE could rebound strongly.

Insider Buying Signals Confidence in Long-Term Value

Insider buying activity has surged in 2024–2025, with executives purchasing shares at prices that now appear undervalued. Key transactions include:

• CEO Toni Townes-Whitley: Bought 3,000 shares in April 2024 at $125.96/share.
• CFO Prabu Natarajan: Acquired 2,000 shares in June 2024 at $114.85/share and 219,098 shares in March 2025 at $109.55/share.
• EVP Barbara Supplee: Purchased shares in multiple tranches, including 215 shares in June 2024 and 39,460 shares in March 2025.

Total insider purchases exceeded $978,000 in 2024 alone, with additional buying in early 2025. This activity is particularly notable as SAIC's stock price has fallen 30% from its November 2024 peak, suggesting insiders view current levels as attractive.

Government Contracts: A Steady Pipeline of Revenue

SAIC's core strength lies in its $23.6B total backlog, fueled by high-value defense and civilian contracts. Recent wins include:

• A $444M U.S. Space Force contract for modernization.
• A $90M contract for the Office of the Under Secretary of Defense for Research and Engineering.
• A $2.8B SOCiM 3 contract (via a partnership with Peraton) for the Defense Information Systems Agency.

These contracts align with U.S. priorities in modernizing defense infrastructure, improving cybersecurity, and advancing space capabilities. The 1.4 book-to-bill ratio indicates SAIC is outperforming its revenue targets, with strong demand for its expertise in cybersecurity, AI, and cloud integration.

Financial Guidance and Risks

SAIC reaffirmed fiscal 2025 guidance:- Revenue: $7.35–$7.50B (flat to 1% growth).- Adjusted EBITDA margin: 9.2–9.4% (up from 9.0% in Q1).- Free cash flow: $490–$510M (despite a Q1 drop due to elevated capital deployment).

Risks include:- Budget uncertainty: The Trump administration's proposed cuts to defense spending could delay contract funding.- Execution risks: Delivering on large contracts like SOCiM 3 requires flawless project management.- Stock dilution: Share repurchases ($81M in Q1) and dividends may pressure cash flow if margins don't improve.

Investment Thesis: Buy the Dip

SAIC is undervalued at current levels. Despite short-term headwinds, its strategic reorganization, robust backlog, and insider confidence position it to outperform peers. The stock trades at 10x forward earnings, a discount to its historical average.

Actionable recommendation: - Buy: For investors with a 1–3 year horizon, SAIC offers strong upside as ROCE improves and contracts ramp up. - Hold: For short-term traders due to near-term cash flow volatility and macro risks.

Conclusion

Science Applications International is a buy on weakness, backed by insider conviction, a fortress backlog, and a strategic roadmap to improve profitability. While risks remain, the combination of government demand, technological leadership, and insider buying suggests SAIC is primed for a rebound. Investors should consider adding exposure to this underappreciated defense tech leader.