Science Applications Stock Plunges 13% as Q1 Earnings Miss Estimates

SAIC shares plunged 13% after Q1 FY26 earnings missed estimates by 10.28%, with EPS at $1.92 despite revenues rising 2% year-over-year to $1.877 billion. The revenue increase was driven by higher contract volume, but adjusted EBITDA declined 5.42%, and margins contracted due to investment seasonality and higher costs in the space business. Despite the earnings miss, SAIC reaffirmed its FY26 revenue guidance of $7.60-$7.75 billion and adjusted EPS guidance of $9.10-$9.30.

Analysis

Science Applications International Corporation (SAIC) experienced a significant 13% stock price decline following its first-quarter fiscal 2026 results, where non-GAAP earnings per share of $1.92 missed the Zacks Consensus Estimate of $2.14 by 10.28% and remained flat year-over-year. This bottom-line underperformance occurred despite a 2% year-over-year revenue increase to $1.877 billion, which marginally surpassed estimates by 0.71%, driven by higher contract volume but partially offset by contract completions. Profitability was a key concern, as adjusted EBITDA declined 5.42% to $157 million, and the non-GAAP operating margin contracted 50 basis points to 8.4%, with the adjusted EBITDA margin falling to 8.4% from 9.0% in the prior-year quarter; these pressures were attributed to investment seasonality and higher costs on a fixed-price space program. Segment-wise, revenues from Defence and Intelligence, constituting 76.3% of total revenues, decreased 0.2% year-over-year, while Civilian segment revenues grew 8%. Net bookings for the quarter were approximately $2.4 billion, reflecting a healthy book-to-bill ratio of 1.3 for the quarter, although the trailing 12-month book-to-bill ratio was 0.8. Despite the Q1 miss and the stock's 9.8% year-to-date underperformance against its industry, SAIC's management reaffirmed its full-year fiscal 2026 guidance for revenues ($7.60-$7.75 billion) and adjusted EPS ($9.10-$9.30), signaling confidence in its longer-term prospects. The company also returned $125 million to shareholders via share repurchases and $19 million through dividends during the quarter.

Key Decisions for Investors

• Investors should acknowledge the significant near-term headwinds reflected in SAIC's Q1 earnings miss, margin compression, and subsequent 13% stock price drop, which highlight execution risks.
• The reaffirmed full-year FY26 guidance provides a potential anchor for valuation, but credibility hinges on tangible performance improvements in subsequent quarters; thus, closely monitor margin recovery and progress towards these targets.
• Consider the current stock valuation in light of the sharp decline and reaffirmed guidance, but maintain a cautious stance, focusing on the company's ability to manage costs, improve profitability in its Defence and Intelligence segment, and convert its $22.3 billion backlog, of which $3.3 billion is funded, into sustained growth.