- The Washington Times - Monday, May 22, 2006

Shares of Arlington defense contractor CACI International Inc.’s stock surged 9 percent last week amid rumors of an acquisition by British intelligence company BAE Systems PLC.

CACI, which initially refused to comment on the report first published in a British newspaper, broke company policy and denied the rumor Wednesday after some of its federal clients raised concerns of a possible conflict of interest should the company be acquired by a British firm.

“CACI is not and has not been in discussions with BAE Systems regarding a possible business combination,” the company said in a statement.

Older than most of its competitors at 44, CACI provides information technology and communications services to defense and civilian agencies as well as commercial customers. The company has a market cap of nearly $2 billion.

The BAE rumors came several weeks after CACI released its third-quarter earnings. For the period ended March 31, net income climbed 5.2 percent to $21.4 million (69 cents per diluted share) on revenue of $435.4 million from $20.3 million (66 cents) on $414.9 million a year ago.

The company’s latest earnings are par for the course, according to analysts, who credit an industrywide slowdown to delays in securing government funding.

“There may be some disruption as to when funding actually flows, but suffice it to say we think that government spending is going to be quite robust over the next few years,” said Sandra Notardonato, a senior research analyst for Robert W. Baird & Co. in Chicago.

Ms. Notardonato, whose company does not currently have an investment banking relationship with CACI, rates the company as outperform.

William Loomis, an analyst for Stifel Nicolaus & Co. Inc. in Baltimore, said CACI relies equally on expansion through mergers and acquisitions as well as organic growth.

“CACI has, given their size, a little broader mix of capabilities than most of their peers,” said Mr. Loomis, who rates the stock at hold.

Earlier this month, the company completed an acquisition of Falls Church IT contractor AlphaInsight Corp., which logged $42 million in revenues last year.

Ms. Notardonato attributes CACI’s fairly steady — if perhaps less-than-impressive — share prices to the “pent-up expectation in the marketplace that the company is going to get bought out.”

“I think there’s that philosophy that’s really preventing the stock from trading down much more,” she said.

Shares of CACI closed at$62.03 yesterday, down from $62.42 on Friday and after reaching $67.02 on May 15 after the BAE rumors were published.

Mr. Loomis, whose company has a banking relationship with CACI, said the contractor is ripe for acquisition in an ever-consolidating industry.

“We’re tending to see one or two of these public companies get bought out per year,” he said. “But the price has to be right, and that’s usually the big issue with these transactions.”

For the fourth quarter, CACI expects revenue between $470 million and $490 million and earnings per share between 71 cents and 76 cents.

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