Bloomberg News

SAIC Shares Rise on Cash Dividend Decision: Washington Mover

March 27, 2013

SAIC Inc. (SAI:US), a provider of engineering and technology services, gained the most in more than nine months after announcing a special $1 a share dividend to be paid in late June.

SAIC, the 10th-largest defense contractor for the U.S. government, rose 50 cents, or 3.9 percent, to close at $13.32 in New York trading and earlier touched $13.65. The one-day increase was most since June 15, 2012.

Cai von Rumohr, an analyst with Cowen & Co. in Boston who rates McLean, Virginia-based SAIC “outperform,” said Chairman and Chief Executive Officer John Jumper is taking the right steps by cutting costs, planning to split the company into two publicly traded units and instituting the special dividend.

“This is our favorite defense stock,” he said in a phone interview. “He’s doing the types of things that should increase shareholder value.”

Analysts including Robert Stallard at RBC Capital Markets LLC disagree. Stallard is one of two analysts who downgraded the stock in February because of looming federal government budget cuts. Automatic spending reductions known as sequestration took effect March 1 and will trim $85 billion through September across all federal agencies.

‘Limited Potential’

Stallard reiterated his “underperform” rating on SAIC, citing “limited potential for the stock beyond” the dividend in a note to investors today. SAIC depends on the U.S. government for about 90 percent of its revenue, according to data compiled by Bloomberg.

The Pentagon must cut its 2013 budget by $46 billion, representing about 54 percent of the $85 billion in planned reductions planned by Sept. 30, when the fiscal year ends.

The Defense Department reductions are in addition to $487 billion in cuts already planned over a decade.

Still, the special $1 a share dividend was an “upside surprise,” said Jason Kupferberg, an analyst with New York- based Jefferies LLC, who has a “buy” rating on the stock.

“The company is increasingly committed to returning cash to shareholders,” Kupferberg said in a phone interview. “I think that was the biggest reason for the stock’s move today.”

SAIC yesterday forecast full-year per-share earnings of $1.16 to $1.33.

Jennifer Gephart, an SAIC spokeswoman, didn’t provide a comment about the gain for the shares today.

-- With assistance from Nick Taborek. Editors: Steve Geimann, David Ellis.

To contact the reporter on this story: Kathleen Miller in Washington at Kmiller01@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


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