CACI Has Just Too Much EPS Despite Revenue Headwinds; Loop Upgrades

Information services and solutions company CACI International Inc CACI announced fiscal 2018 second quarter results Wednesday, showing 2.9 percent revenue growth to $1.09 billion and above-consensus non-GAAP earnings of $2 per share.

The Analyst

Loop Capital Markets analyst Joseph Vafi upgraded shares of CACI International from Hold to Buy, with a $170 price target.

The Thesis

CACI International is likely to be constrained by very low-single-digit revenue growth for the coming quarters, going by the lackluster new business metrics, Vafi said in a note. That said, the analyst sees dollar-for-dollar boost to the company's net income from the tax reform.

EPS outperformance can continue in the fiscal second-half of 2018 due to strength in gross margin and a conservative bottom-line outlook, Vafi said. The reduced tax rates and continued EPS beats are enough to make the stock to work from here.

"While we already boosted our estimates materially for this anticipated tax rate reduction, Street numbers still have to come up materially," the analyst said.

In addition to the upward revision to its earnings estimates ahead of the updated tax-rate guidance, Loop Capital raised the estimates yet again, citing the one-time deferred tax liability write-down, and further fine-tuning of its tax-rate assumptions.

The firm also expects a 10 percent boost to free cash flow due to tax reform.

The Price Action

CACI shares were up about 15 percent over the past year ahead of the earnings release.

Reacting to the earnings announcement, shares were up 7.2 percent to $150.70.

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