CACI has been treading water for the past six months, recording a small loss of 1.4% while holding steady at $419.49. The stock also fell short of the S&P 500’s 11.9% gain during that period.
Is there a buying opportunity in CACI, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.We're sitting this one out for now. Here are one reason why CACI doesn't excite us and a stock we'd rather own.
Why Does CACI Spark Debate?
Founded to commercialize SIMSCRIPT, CACI International (NYSE:CACI) offers defense, intelligence, and IT solutions to support national security and government transformation efforts.
Two Positive Attributes:
1. Skyrocketing Backlog Locks In Future Sales
Investors interested in Defense Contractors companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into CACI’s future revenue streams.
CACI’s backlog punched in at $32.4 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 11.7%. This performance was impressive and shows the company has a robust sales pipeline because it is accumulating more orders than it can fulfill. Its growth also suggests that customers are committing to CACI for the long term, enhancing the business’s predictability. 
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
CACI’s EPS grew at a spectacular 15% compounded annual growth rate over the last five years, higher than its 8.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, CACI’s margin dropped by 4 percentage points over the last five years. If its declines continue, it could signal higher capital intensity. CACI’s free cash flow margin for the trailing 12 months was 5.1%.
Final Judgment
CACI isn’t a terrible business, but it isn’t one of our picks. With its shares underperforming the market lately, the stock trades at 20.2× forward EV-to-EBITDA (or $419.49 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at FTAI Aviation, an aerospace company benefiting from Boeing and Airbus’s struggles.
Stocks We Would Buy Instead of CACI
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