SAIC Posts Solid Quarter, but Lawsuit Looms

Defense contractor SAIC posts another strong quarter, but a Justice Department lawsuit clouds the company's future.
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SAN DIEGO (TheStreet) --



, the government contractor, posted another quarter of revenue and profit growth late Wednesday.

Analysts largely praised the report, in which SAIC reaffirmed earlier guidance that projects profit growth of 11% to 18% for the company's current fiscal year.

Investors, however, reacted with something of a shrug. The stock was off between 2% and 3% in morning trading Thursday before moving into positive territory, recently changing hands at $18.13, up a nickel from the previous close.

For the just-ended quarter, SAIC said its per-share earnings grew 13% from a year ago, beating analysts' expectations by a penny, and that its revenue expanded by 8% to $2.75 billion.

The company has announced a series of contract wins since the beginning of the year, from IT services for FEMA to integration and training services for the Marines as the corps ramps up a new program designed to counter the use of radio-controlled bombs by opposition forces and terrorist groups in Afghanistan.

During the third quarter, SAIC said it booked $2.3 billion worth of new contracts -- not a gangbusters showing, according to some analysts, but a strong enough pace for the company to feel confident about its growth projections.

Still, all the positive news aside, SAIC has a potential problem: a Justice Department suit that could cost the firm more than $350 million in penalties and, much more ominously, could cause the federal government to temporarily ban the firm from bidding on new contracts.

In July, the DOJ joined a whistleblower lawsuit accusing SAIC of colluding with Navy officials in 2004 in order to secure a multimillion-dollar computer-services contract at the Stennis Space Center in Mississippi.

Analysts appear unready to begin the process of handicapping the potential for any financial damage the suit may have on SAIC.

The DOJ's case, after all, is somewhat convoluted and provides no evidence that SAIC paid anyone off.

But, as the

Washington Post

wrote recently about the case, "The government's recitation of events has the kind of sleazy authenticity that would be familiar to anyone who has spent time in the contracting world."

SAIC, of course, denies any wrongdoing. But in its conference call to discuss earnings with investors and analysts, management appeared at least a little nervous about the case.

"Based on what we know to date we continue to believe the government's legal claims lack merit," SAIC's chief executive, Ken Dahlberg said. "Unfortunately it could be years before this matter is resolved."

"These types of cases and their resolution are critically important to me and our company because we are committed to maintaining the highest ethical standards which our reputation is built upon," Dahlberg said.

-- Reported by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.