CACI International Is a Top Defense Sector Play in a Hillary Clinton Presidency
CACI International Inc (NYSE:CACI) is one of the defense and aerospace sector companies that you may not have heard about. Yet, after a relatively strong 2016, CACI stock is poised to perform even better in 2017. CACI’s activities alone explain why this is so.
CACI develops information services solutions specifically for national security and government programs in intelligence gathering. It also offers services to civilian customers.
In other words, like Boeing Co (NYSE:BA), CACI stock gains from diversification, benefiting from civilian and military contracts. But, in a Hillary Clinton world, surveillance and intelligence—especially the prevention of cyberattacks and hacking—will take center stage. CACI will be one of the companies the government will rely on to get those jobs done.
CACI stock is trading at about $99.00. It touched its record high of $109.38 last April, but it traded at $80.00 a year ago, and it has risen constantly since it went public in 2003. Indeed, CACI shares have seen their best performance since June 2012, when they were trading at $40.00. After a bit of a difficult start, marred by company employees’ links to the Abu Ghraib scandal in Iraq, the company has evolved significantly in the past decade.
Evidently, the scope of the transformation has worked. In 2008, 95% of its revenue, $2.4 billion, came from contracts with the Department of Defense or Pentagon-related agencies (including the Defense Advanced Research Projects Agency (DARPA) and the Missile Defense Agency). In 2016, CACI reported annual revenues of $3.74 billion. This was slightly lower than the record revenue of $3.77 billion of 2012. The discrepancy can be explained in large part to the “sequestration” process at the Pentagon, which basically means that the defense budget has faced cuts over the past four years.
But, given the state of international relations today, CACI can expect more calls for services from the Pentagon and other U.S. agencies involved in security missions. The cyberwars are at fever pitch. Indeed, computer hacking has become an ever more insidious danger. It has also become an insidious threat that the U.S. can launch against governments in retaliation. Recently, for instance, the Obama administration threatened Russia with a major cyberattack.
That’s where companies like CACI come in.
The more tensions between Russians and Americans, the better it is for CACI stock. That said, there are plenty of other security concerns to go around. So, should relations miraculously improve—under a Hillary Clinton administration—between Washington and Moscow, CACI can still expect big contracts to deal with China. CACI shares move in a bullish direction, anytime branches of the U.S. security agencies and the military need support.
The U.S. Army has a specialized unit, known as the Intelligence and Information Warfare Directorate (I2WD), which relies on CACI to design software and hardware to protect the United States from electronic warfare attacks and develop the necessary countermeasures. (Source: “CACI wins Army electronic warfare contract,” C4ISRNET, May 24, 2016.)
In other words, this is ideal for the company and should translate to better performance for CACI stock over the next few months and, possibly, years. In August, meanwhile, CACI got another contract that is a sign of bullish things to come for the company.
A CACI subsidiary won a $10.0 million no-bid contract last July. Under its terms, the subsidiary Six3 Systems will help the U.S. gather intelligence about ISIS in Syria and Iraq. The contract is small by defense sector standards, yet the potential for this sort of problem mushrooming all over the world exists. The other bullish consideration that emerges from the contract is that the United States military, like it or not, is relying ever more on contracting out activities to the private sector. This allows investors to profit from defense efforts directly.
If that’s not enough, also last July, CACI International won a big chunk of a $975.0-million contract to support the Counter Narcotics and Global Threats operations for the U.S. Central Command (CENTCOM). (Source: “CACI wins $975m contract to help counter narcotics and global threats for US CENTCOM,” army-technology.com, May 11, 2016.)
CACI will build on its 2016 success in the next year as revenues, income, and cash flow all increased. The company has shown an ability—or knowing how to be at the right place in the right time—to win contracts. This has placed it in an even better position to grow in the next presidential term. It would be reasonable, given last year’s performance to expect over 20% growth for CACI stock, which means it could hit $110.00-$115.00 in 2017.