CACI International CACI shares have gained 51.5% year to date, outperforming the Zacks Computer and Technology Sector and S&P 500 index’s growth of 19.4% and 18.1%, respectively.

CACI International stock has also outperformed the Zacks Electronics - Semiconductors industry’s return of 15.2% in the same time frame. CACI’s outperformance reflects investors’ confidence in the persistent demand for CACI’s offerings in the federal and defense space.

In a move to further enhance its portfolio, CACI recently agreed to acquire  Azure Summit Technology in an all-cash transaction for $1.275 billion. The acquisition will add radio frequency technology and electromagnetic spectrum expertise to CACI’s portfolio.

The Acquisition of Azure Summit to Boost CACI’s Prospects

Azure Summit Technologies’ core expertise lies in intelligence, surveillance and reconnaissance (ISR), electronic warfare (EW) and signals intelligence (SIGINT). These offerings will aid CACI in increasing the depth of its offerings for the Department of Defence clients.

So far this year, CACI has received a dedicated SIGINT order worth $416 million, an ISR order worth $198 million and a $382 million Electronic Warfare Systems Task Order all from the U.S. Army. The acquisition of Azure Summit is anticipated to result in a greater inflow of orders due to the enhanced capabilities of CACI.

Additionally, CACI believes that the acquisition of Azure Summit will be immediately accretive to its revenue growth, EBITDA margin, adjusted earnings per share and free cash flow per share. In an investor presentation, CACI revealed that it expects Azure Summit to contribute nearly $440 million in revenues and approximately $110 million in adjusted EBITDA in the first year following the completion of the acquisition.

CACI International YTD Performance

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Near-Term Challenges for CACI

CACI International operates in a highly competitive defense, space, intelligence and mission-critical services market that comprises contenders, including Science Applications International SAIC, Leidos Holdings LDOS and KBR Inc. KBR.

CACI’s competitors, Science Applications International, KBR and Leidos, are established players in the industry with their respective strengths. They compete with CACI through a competitive bidding process. These players also compete for a limited number of government contracts from the Department of Defense, the Department of Homeland Security and other U.S. government agencies, creating a highly competitive environment in this niche industry. This high competition causes pricing pressure leading to low-margin government deals, affecting CACI’s profitability.

CACI International is also facing challenges from recessionary concerns amid the ongoing macroeconomic and geopolitical tensions that might lead to softened spending by government agencies.

CACI’s rising debt level is another major concern. Its long-term debt has increased in the past eight years. The figure rose to $1.48 billion at the end of fiscal 2024 from $1.03 billion at the end of fiscal 2015. As a result, its annualized interest expense has increased during the same time frame. Additionally, the long-term debt level of $1.48 billion as of June 30, 2024, is much more than cash and cash equivalents of $134 million.

Conclusion

CACI’s latest agreement to acquire Azure Summit is likely to enhance its offerings in ISR, EW and SIGINT space, as well as boost its financial prospects. CACI shares have jumped 51% year to date and reached $490.37 as of Sept. 16. Shares of CACI International trade near its 52-week high of $498, which limits the stock’s upside potential.

Intensified competition and its high debt levels, along with low cash levels, also pose major concerns. So, it is prudent for investors to wait for a better entry time. CACI carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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