SAIC (NYSE:SAI) bills itself as a “scientific, engineering, and technology applications company that uses its deep domain knowledge to solve problems of vital importance to the nation and the world, in national security, energy and the environment, critical infrastructure, and health.” That in itself is a mouth full, but the fact is that the company is geared to many industries with favorable secular growth trends. As such, the stock is worth a close look.

Sales improved a solid 12% to $2.65 billion and was attributed by the chairman and CEO Ken Dahlberg to “wins in defense logistics, information technology, cyber-security, and intelligence support as well as increased tasking on existing defense and intelligence programs.” Better yet, 11% of this growth was by organic means, meaning SAIC is not relying on riskier acquisition growth to boost the top line. The company also announced $2.6 billion in new business during the quarter on the inking of deals with the Armed Forces, Department of Homeland Security and the state of Hawaii, covering services stemming from biometrics, emergency response and clean energy initiatives, respectively.

Improving Sales
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Capitalizing on Stimulus
As illustrated by the strong sales trends, SAIC’s businesses are suited to capitalize on government economic stimulus spending and the continued focus on national security, and this is also showing in the impressive profit growth. Rivals such as Harris Corp (NYSE:HRS), Rockwell Collins (NYSE:COL) compete with SAIC in securing government contracts and are also seeing strong order activity from public institutions.   

Climbing Cash Flow
Quarterly operating income advanced 17% to account for 7.7% of total sales while earnings grew 16% to 29 cents per diluted share. Operating cash flow also jumped considerably on high cash collections from deep-pocketed customers and allowed management to repurchase $223 million in its common stock. In terms of guidance, SAIC plans on meeting its annual goal of 6-9% sales growth, a 20-30 basis point improvement in operating margins, and earnings growth between 11% and 18%. Analysts currently project $1.24 in full-year earnings per share.       

Bottom Line
Given the current earnings expectations, SAIC trades at just under 15 times forward earnings. That is a very reasonable multiple given a healthy sales outlook that is quite visible with the current work backlog. The profit picture is equally stable, both of which are reflected in a stock price that has traded within a narrow range in what has been a period of record high volatility in the stock market. This makes the entire industry appealing, but SAIC stands out for the robustness of its organic expansion record.  (Learn more about growth investing in our tutorial, Stock-Picking Strategies: Growth Investing.)