Investopedia: CACI Gearing Up For Tougher Times

With about three-quarters of revenue going to the Department of Defense and upwards of 90% of revenue going to various Federal agencies in total, CACI International (NYSE:CACI) would seem to have a lot to lose from years of presumably tighter federal budgets. This "conventional wisdom" may create an opportunity for risk-tolerant investors; this company has been through budgetary ups and downs before, and a combination of quality execution and the potential for mergers and acquisitions (M&A) should help prop up results.

Recent Results Relatively Positive  
Bearish analysts have been calling for a major downturn in growth at CACI for some time, but the company stubbornly refuses to go along with that. In the last quarter, CACI reported 9% organic revenue growth and a nearly full point improvement in operating income. Funded backlog has been declining relative to revenue, though, and that's a reality that cannot be ignored.

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Seeking Alpha: Microsemi Needs To Start Delivering On Its Potential

There's a quote out there, apocryphally quoted to former NFL player Randy White, that “potential is a fancy French word that means you haven't done anything yet”. Although that is arguably a harsh introduction to semiconductor company Microsemi (Nasdaq: MSCC), there is an element of truth to it – Microsemi could indeed be an attractive semiconductor stock to hold at these prices, but the company needs to begin delivering on the growth and margin potential that bulls have long seen in the name.

Come Hell Or High Water
There were multiples concerns that set these shares back in 2011, but it is worth noting that Microsemi's performance was not that bad in the context of a generally poor year for semiconductor stocks.

For starters, the near-constant wrangling over the federal budget and the concern over the government's debt and deficit situation has led investors to assume significant cutbacks in defense spending. With roughly one-third of Microsemi's business coming from selling to defense contractors like Lockheed (NYSE: LMT), Raytheon (NYSE: RTN), and L-3 (NYSE: LLL), that's no trivial concern. Fortunately for the company, the recent defense budget was not as bad as initially feared and the company stands to benefit from smart warefare retrofit projects (like GPS-equipped mortars).

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Microsemi Needs To Start Delivering On Its Potential

Investopedia: Orbital Sciences - Profits In The Final Frontier

Space exploration is a tricky calculation for politicians. Although the long-term benefits are real, it can be difficult to justify the seemingly enormous price tags in the short term, particularly when there is no shortage of people willing to howl that those billions could be spent closer to home. This push-pull is in some ways a design feature for Orbital Sciences (NYSE:ORB). As one of the only companies out there devoted to space-based systems, Orbital would seem to offer a golden ticket to the U.S. government - the opportunity to continue to reap the benefits of space activity while also cutting costs and encouraging the private sector to take a larger role.

From the Mundane to the Magnificent  
Orbital Sciences has been at this quite a while, so long in fact that quite a few institutional investors have gotten bored with the name. That overlooks the fact that the company has actually accomplished quite a lot. This company not only sells missile defense target vehicles to the Department of Defense, but is also a viable player alongside The Boeing (NYSE:BA), Raytheon (NYSE:RTN), Lockheed Martin (NYSE:LMT) and Alliant Techsystems (NYSE:ATK) in areas like launch vehicles, satellites and space systems.

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Invesotpedia: Can CACI Get A Bigger Piece Of A Smaller Pie?

Weak federal government spending has been a problem for a lot of companies recently, including Cisco (Nasdaq:CSCO) and NetApp (Nasdaq:NTAP). With major worries about the unsustainability of recent budget deficits and political pressure to cut spending, it wouldn't seem like a good time to invest in companies that largely rely on federal business for their revenue. Still, with IT products and services that help government agencies modernize and cut costs, CACI International (NYSE:CACI) may be able to capture a bigger piece of smaller budgets. (To help further identify company success, read 3 Secrets Of Successful Companies.)

A Stronger Fourth Quarter Than Expected  
CACI managed to log better than 13% growth in the fiscal fourth quarter, slightly beating the average analyst guess. Organic growth was strong as well, at better than 11%. As usual, business from the Department of Defense was the driver this quarter - up more than 17% and making up 81% of sales. Revenue from federal civilian agencies, the company's second largest category, was down more than 2%.

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Investopedia: OM Group Looks Too Cheap

The first week of May has not been a good one for speculators on the long side of many metals trades. Silver took a significant plunge, gold sold off and copper cracked the $4 level. Not too surprisingly, then, it was a rough week for major metal commodity stocks like Vale (Nasdaq:VALE), Freeport-McMoRan (NYSE:FCX) or Barrick Gold (NYSE:ABX).


Investors who want to play commodities from a more strategic, and generally less volatile, angle may want to consider OM Group (NYSE:OMG). While OM Group is not a pure commodity company in the sense that it sells raw metal, the company does offer a way to play the demand for cobalt through its cobalt-based specialty products businesses. Better still, it seems too cheap.

A Great Quarter That Most Won't Notice
OM Group has precious little institutional coverage, so it's not exactly front page news when the company reports earnings. Moreover, 9% revenue growth probably does not seem all that exciting, even if it is well ahead of even the highest published revenue estimate. Top line growth was certainly boosted by the inclusion of a full quarter of the battery business; the pre-existing and fully comparable advanced materials and specialty chemicals businesses posted growth of 6% and 5% respectively on modest volume growth. 



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Investopedia: SRA Today, CACI Tomorrow?

Acquisition announcements on Fridays are a bit rare, but that was about the only really surprising part of the announcement that IT services provider SRA International (NYSE:SRX) was taking a bid to sell itself. What may be more interesting for investors, though, is the speculation as to whether SRA will get a competing bid and/or whether other leading IT service companies may see a revaluation of their shares.

SRA - A Solid Bid at Last
There have been rumors for a little while that SRA was attracting buyout interest. There was a rumor back in January that Britain's Serco had offered $2 billion, and the company has basically been in play ever since. Those rumors came to some fruition with the announcement Friday that the company had accepted a bid from Providence Equity Partners for $31.25 a share in cash, or a total deal value of $1.9 billion.

At $31.25 a share, Providence is giving shareholders a 10% premium to Thursday's closing price and more than a 50% premium to the price before the deal speculation really got going. Like the eBay (Nasdaq:EBAY) deal for GSI Commerce (Nasdaq:GSIC), this offer is including a 30-day go-shop period; likely in the hopes of de-fanging the ambulance-chasing class action suits that seem to be popping up these days whenever a deal is announced. (For more, see Is eBay Looking At GSI Commerce As Another PayPal?)

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An Intelligent Deal For Raytheon

The unpredictable and highly political nature of defense and intelligence spending make it difficult for small, publicly traded defense companies to really thrive. It is not all that surprising, then, that there has been a wave of M&A in the space - not only due to the increasing significance of electronic warfare and the need for bigger companies to add technology, but also the increasing uncertainty of spending in the face of higher deficits and debts.

With all that in mind, then, it is not surprising to see Monday's announcement that Raytheon (NYSE:RTN) reached a deal to acquire Applied Signal (Nasdaq:APSG). (For background reading, check out the Mergers & Acquisitions Tutorial.)

The Scoop on the Deal 
What is a surprise is that Applied Signal's management essentially put itself on the block back in October of this year. This is surprising because the company's management had not been very warm to the idea of a sale for many years. With that change in attitude though, things moved quickly.

Raytheon, one of the largest defense companies in the world, announced that it would acquire Applied Signal for $490 million in an all-cash deal that values Applied Signal at $38 per share. That is not only a 9% premium to the stock's closing price on Friday, but also a 90% premium to where the stock traded before management publicly discussed the possibility of a sale.

All in all, this is an eminently fair deal for Applied Signal shareholders. Relative to deals like Boeing (NYSE:BA), which bought Argon ST; Northrop Grumman (NYSE:NOC), which bought Essex; and FLIR (Nasdaq:FLR), which acquired iCX Tech; if APSG goes out at more than 15 times its trailing EBITDA, it's a fair price.

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Allegheny Becomes Broader Still

Give credit where it is due - Allegheny Technologies (NYSE:ATI) is not messing around when it comes to its plans to diversify away from stainless steel products and become a more diversified player in advanced alloys and technologically sophisticated components. The latest move is the acquisition of Ladish (Nasdaq:LDSH), a small company that has focused on forged and cast-metal components for the aerospace and defense industry.

The Deal
Allegheny is paying a total consideration of $48 per share to Ladish, consisting of $24 per share in cash and slightly less than 0.46 shares of stock for each share of Ladish. That is a total deal value of about $778 million (prior to the post-announcement moves in the stocks) or slightly more than 14 times Ladish's trailing EBITDA. For Ladish shareholders, it also represents more than a 63% premium to the prior night's closing price, but a roughly 17% discount to the company's all-time high back in mid-October of 2007.

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Can Defense Be Part Of A Good Offense?

As football season gears up once again, it seems inevitable that the airwaves will fill with the old cliché that "defense wins championships". Whether that is true or not in sports, it is worthwhile for investors to ponder that question for themselves. Stocks in the defense industry have not performed notably well of late, so it may be time to consider whether this sector could do more than offer a little protection to an investor's portfolio. 

The Winding Down Of Two Wars
Perhaps it seems odd to consider defense stocks in the wake of the announcement of the end of active combat operations in Iraq. The reality is that war is not an equal opportunity to all companies. Oftentimes valuable system upgrades are pushed off and innovative new projects are delayed as an ongoing war siphons off any available resources. 


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