Investors Get Tough with CACI

Shares of the services provider dropped 14% Thursday as it issued a downbeat forecast

Companies that provide services to the U.S. Government like CACI International (CAI) have been riding high in recent years, financially. The company's activities range from interrogating prisoners in the Abu Ghraib prison in Iraq to managing the government's information technology. Wall Street has mostly found favor with the company, but not on Jan. 18, when CACI's stock plummeted.

Why? The tide of government support for information technology services business may finally be shifting - and the competition for it is tough. The Arlington (Va.)-based company said late Jan. 17 that it expects earnings per share to range between $2.45 and $2.65 during fiscal year 2007. The mean analyst forecast for the year had been for $3 per share, according to the San Francisco research firm StarMine.

For the second fiscal quarter, CACI's results will be at the low end of guidance issued on Nov. 1 between 65 cents and 72 cents per share.

The company explained that the Department of Defense is shifting money away from IT maintenance contracts towards the Iraq and Afghanistan wars instead. CACI also lost two deals that went up for rebidding -- and more of its rivals have filed protests to contracts it recently won. Meanwhile getting hires with a high-level security clearance is a tough battle against the competition.

CACI's stock price plummeted 14.3% to $47.22 per share in late trading Jan. 18 on the New York Stock Exchange. Even so, CACI's value in investor eyes has come a long way from where it had been after the September 11, 2001, terrorist attacks. When adjusting its price for dividends and splits, the stock had traded at $25.24 per share on Sept. 17, 2001, according to Yahoo.

The company insists it's still on track to meet its long-term growth objectives. "Management believes the fundamentals of CACI's business remain strong," the company said in a press release Jan. 17.

Standard & Poor's Equity Research sees the company's recent misfortune in the market as a buying opportunity. Analyst Dylan Cathers upgraded CACI to buy from hold in a research note Jan. 18, explaining that the shares have gotten much cheaper today. But Cathers also scaled back a 12-month target price by $6 to $54, given adjusted expectations of the company's earnings in 2007. (S&P, like, is owned by The McGraw-Hill Companies.)

Meanwhile, Robert W. Baird & Co. analyst Sandra Notardonato took a different tack, cutting the firm's rating on CACI to neuatral from outperform on Jan. 18. While last week Notardonato felt "reassured" that the recent departure of CFO Stephen L. Waechter was not a precursor to reduced guidance, she now believes the copmpany's credibility is in question based on the Jan. 17 release.

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