Playing for the Real Money in Homeland Defense
In a move that will deliver a major windfall to the winner, the Department of Homeland Security is expected to award one of the largest federal technology contracts in history to either Accenture (ACN), Computer Sciences (CSC) or Lockheed Martin (LMT) by the end of this week.
The contract calls for building a complicated system of databases and identification devices to monitor visitors crossing U.S. borders. Known as the United States Visitor and Immigrant Status Indicator Technology program, or US-Visit, the contract could be worth as much as $15 billion and augment the billions already spent by the fledgling government agency to beef up security in such fields as air travel.
"This is the whopper," said Cindy Shaw, an analyst with Schwab SoundView Capital Markets, who has outperform ratings on Accenture and Computer Sciences. (Her firm has done banking with Accenture but not with Computer Sciences.)
Federal information technology services analyst Erik Olbeter in Schwab SoundView's Washington Research Group believes that Lockheed is the likely winner, with a 60% probability of snapping up the US-Visit contract. Accenture has a 30% chance of winning, Computer Services a 10% chance, he estimates.
The rationale behind those odds: Accenture excels at developing a technology vision, but Lockheed has the most experience with legacy systems and managing a project of this scale for the federal government, Shaw explained.Ultimately, the lead company on the winning team will collect about two-thirds of the contract, Schwab SoundView estimates. With Congress expected to appropriate only $340 million for the contract in fiscal 2005, and typical IT government contracts garnering operating margins in the high single-digit percentages, US-Visit is likely to translate into earnings growth of just a few percentage points in the first year or two, Shaw figured. Among the three finalists, Lockheed's top and bottom lines would enjoy the relatively smallest boost from the contract, based on current financials. The world's largest defense contractor is expected to post $2.63 a share in earnings on $34.8 billion in revenue projected in fiscal 2004.
|The Race for US-Visit
Three teams are vying for one of the biggest federal technology contracts in history
|Team 1||Lockheed Martin||Harris, SI International, Unisys, IBM|
|Team 2||Computer Sciences||EDS|
|Team 3||Accenture||Raytheon, Dell, AT&T|
|Source: Jefferies & Co.|
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