- The Washington Times - Monday, December 25, 2006

SRA International is feeling the pinch.

A leader in the federal information technology market, SRA International Inc. is feeling pressure from a diminishing work force and funding cuts because of the war effort in Iraq.

Historically, the Fairfax computer software company has been well positioned in the national security sector.

“A few years back, the company had a 38 percent organic growth rate,” said Benchmark Co. analyst Alex Hamilton. “But recently it’s been coming down, 17.2 percent in 2005, and 9 percent in 2006.”

SRA International said net income for the third quarter ended Sept. 30 rose 5 percent to $15.1 million (26 cents per diluted share) compared with $14.4 million (25 cents) a year ago. Revenue for the quarter rose 8 percent to $304 million from $280 million.

Analysts attribute the company’s recent stumble to a fickle federal IT market stemming from the Iraq war budget.

“I’m concerned with the 2007 fiscal budget from the government and how it will affect the company,” said Jason Kupferberg, an analyst at UBS in New York.

“No agency has had its budget approved and there is talk from incoming Democrats that they may extend a continuing resolution though Sept. 30, 2007.”

Under a continuing resolution, the government spends on programs that are already in place, under the current budget. If the current continuing resolution lasts into much of next year, it would hurt federal contractors because it would restrict the government’s ability to increase spending on contracts or pursue new ones.

The 30-year-old company has a client list that includes the Department of Defense, the National Guard, the Department of Homeland Security, several intelligence agencies and other federal organizations with homeland security missions.

SRA International is known for its NetOwl text mining software tool that gives agencies and businesses text and data mining capabilities.

Recruiting also has been a big challenge for the company and is beginning to hurt its market performance.

“It’s been a tough hiring environment because the commercial sector [in the D.C. area] is doing well,” said Bill Loomis of Stifel Nicolaus in St. Louis. “The net hires have been lower than the company needs. … They need to focus hard on recruitment and employment,” he said.

SRA International’s stock closed at $25.57 Friday, a 15 percent decrease from a month ago and 33 percent off its 52-week high of $38.28, reached in March. Financial markets were closed yesterday for Christmas.

Optimistic analysts said that those issues are affecting the entire industry, not just SRA.

The company has taken some positive steps toward better performance, including two sizable contract wins in late December.

The first was a four-year, $10.5 million contract to provide information technology support for the Environmental Protection Agency’s “brownfields” cleanup program.

SRA also won a five-year, $13.6 million contract from the Department of Defense to provide technical and analytical services to improve the efficiency and effectiveness of the military health system.

“The future of the company looks good for SRA International,” Mr. Loomis said. “It has a strong business pipeline, and they will get their fair share of contracts in the upcoming quarter.”

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