For true value investors, especially deep-value investors in hot pursuit of companies overlooked by the rest of the market (especially professional analysts), a wave of analyst upgrades may not be the signal of a buying opportunity. If a raft of analysts are giving it their attention, especially positive attention, then the stock price will probably track upward. Such uptrends are the product of both the increased awareness and support created by these analysts, as well as the fact that professional analysts – careful to avoid controversial picks – will generally jump on the bandwagon of companies that are already moving materially in the right direction.
But that does not mean a host of analyst upgrades should disqualify a potential opportunity from those investors seeking value in the rough. In this research note, we discuss CACI International (CACI, Financial), a defense information technology company that has garnered significant positive analyst attention over the past couple months, but may offer some positive value opportunity for investors despite the mounting interest from the pros.
Introducing CACI
According to its website:
"CACI provides information solutions and services in support of national security missions and government transformation for Intelligence, Defense, and Federal Civilian customers."
CACI International is a defense and national security IT service company operating in four core business units: Business Systems, Command & Control, Communications and Cyber Security.
"Our information solutions and services help our customers:
- Safeguard our national security.
- Support critical decision-making to counter global threats.
- Keep our Armed Forces informed, equipped, and mission-ready.
- Transform government to enhance the quality of services to our citizens.
- Modernize government to more efficiently meet national challenges."
That is the rundown – in brief – of what CACI does, but why are analysts so bullish lately? Let’s take a look at that question in the next section.
Analysts getting excited
Within the past three months, CACI International has received upgrades from no less than four professional analysts. Most recently, Noble Financial upgraded the stock from a hold to a buy, citing the following justification:
"We are upgrading shares from Hold to Buy, as shares have hovered in the $150 range despite improved profitability, a much improved macro environment and the CSRA bid now being in the past."
This judgment has been supported by a number of other analyst firms, including Raymond James, which upgraded its outlook on CACI in March from buy to strong buy. Noble, the latest firm to issue a recommendation, has set a price target of $175, which is also the analyst consensus price target.
Verdict
Given the state of the world and the improving profitability of CACI International in recent quarters, it does look as if market sentiment is continuing to lag improving internal fundamental and macro tailwinds that should support this innovative IT services company. The defense industry is in increasing need of such services, and the company's own operations have moved from strength to strength. That seems to justify a move upward from the current price of $163.50, though perhaps not by a huge amount. The stock price has already closed more than half the gap between the trading price and analyst consensus after the Noble Financial upgrade.
But it does appear to be a relatively safe play on an industry that is set to grow in a defense industry faced with an increasingly uncertain geopolitical landscape, and that is ever more dependent on top-quality IT services to maintain security.
Disclosure: I/We own no stocks discussed in this article.
