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For the third consecutive quarter, Science Applications (SAIC) comfortably exceeded EPS and revenue expectations, driven by significant new contract wins within the U.S. military complex and healthy operating margin expansion. Despite the company's recent winning streak versus analysts' estimates, sentiment has been decisively bearish on the provider of engineering and IT services for U.S. government agencies. This weakness is primarily related to the Trump administration's directive to reduce the size of the budget of the Department of Defense (DoD), while identifying $50 bln in program cuts for the FY26 budget.

Based on SAIC's strong Q4 results and upwardly revised FY26 EPS and revenue guidance, it appears that those concerns revolving around a spending slowdown at the DoD were mostly overblown.

• Subsequent to the quarter end, SAIC received a $1.8 bln contract award from the U.S. Army, marking its largest recompete win in recent years. With this win, alongside a growing list of other submitted bids, the company's backlog has grown to approximately $20.0 bln, providing it with a stable foundation for future revenue generation.
• A key factor driving SAIC's growing backlog is its expansion into cybersecurity services through key partnerships, such as its relationship with Xage Security which has accelerated its zero trust security capabilities. Given that cyber-attacks are increasing in both complexity and volume, with governmental agencies oftentimes representing a primary target, spending on cybersecurity tools remains a priority. As a recent example, SAIC secured a $170.9 mln contract from the Texas Department of Information Resources in December 2024 to enhance the cybersecurity of state agency networks.
• Additionally, many government and military institutions are in need of modernizing their IT infrastructure. Last May, the company was a awarded a five-year, $232 mln task order by the U.S. Army to provide systems engineering and IT modernization support in order to develop signals intelligence and electronic warfare systems.
• Effective cost management and better operational efficiencies are combining with the healthy bookings growth to push margins and earnings higher. In Q4, adjusted operating margin expanded by 250 bps to 9.6%, facilitating an 80% surge in EPS to $2.57. 

SAIC delivered an impressive beat-and-raise earnings report, easing fears that a sharp pullback in spending at the DoD would put a serious dent in demand for the government contractors' IT services.