Science Applications International Corp (SAIC) stock intrinsic value fair value estimate & owner earnings analysis

Science Applications International Corporation (SAIC) is a technology and engineering services contractor to the U.S. government. In fiscal 2026 (year ended January 30, 2026) it earned $7.26 billion of revenue, 98% from U.S. government contracts. Defense and Intelligence produced $5.58 billion and Civilian $1.68 billion. About 62% of revenue comes from cost-reimbursement contracts, which limits inflation risk. Backlog was $22.6 billion at year-end, roughly three years of revenue, and fiscal 2026 net bookings of $7.8 billion exceeded revenue. How we measured earnings: we started from operating cash flow and removed working-capital swings, stock compensation (treated as a real cost) and maintenance capital spending, which is small at about $25-45 million a year. On that basis owner earnings were $414-450 million a year in fiscal 2021-2025 (the year of the 2024 divestiture was lower at $328 million because of taxes paid on the gain) and $525 million in fiscal 2026. We do not use fiscal 2026 as the earning level: cash taxes paid were only $22 million versus $66 million the year before because the July 2025 tax act restored immediate expensing of R&D costs, a timing benefit the company itself describes as a cash tax benefit in the current year. We measure the business from fiscal 2021, the first full year after the Engility acquisition roughly doubled its scale relative to earlier years, and take the median of fiscal 2021-2026, about $430 million a year. Buybacks have cut the diluted share count from 58 million to about 43 million, so that is roughly $10.00 per share today. Growth check: owner earnings per share rose 27% in fiscal 2026, but that was flattered by the tax timing above and by buybacks, so we assume no growth. Revenue fell 3% in fiscal 2026 (about 3.3% excluding the SilverEdge acquisition) as contracts finished and ramped down. The first half of fiscal 2027 shows revenue up about 4% ($3.79 billion versus $3.65 billion) and operating cash flow of $273 million versus $222 million, which supports the level but is one half-year, so it is not credited as growth. Base case, $134 per share: owner earnings hold at about $430 million ($10.00 per share) for ten years. The evidence is six years of revenue between $7.0 and $7.7 billion, backlog of about three years of revenue and bookings above revenue. After year ten we let earnings decline 3% a year, because we cannot point to a named source of new work that far out. No growth from new markets, share gains or margin expansion is included. Bear case, $66 per share: earnings start lower at about $320 million ($7.44 per share) and shrink 4% a year for ten years, then 6% a year. This rests on the actual fiscal 2026 pattern of contracts completing faster than new ones ramp, on normal cash taxes returning, and on the concentration of nearly all revenue with one customer whose spending can be delayed, as with the roughly $26 million shutdown hit in fiscal 2026. The company also carries $2.5 billion of debt, including a $1.1 billion term loan and $501 million term loan due March 2027 that must be refinanced, so higher interest costs would reduce what is left for shareholders. Debt is not deducted separately in any case; its interest cost is already in cash flow. Bull case, $176 per share: the business executes on its identified levers. Earnings start near $460 million ($10.70 per share), in line with the fiscal 2025-2026 run rate, and grow 2% a year for ten years, in line with demonstrated revenue growth of about 1-2% a year since fiscal 2021 and supported by the $22.6 billion backlog and 1.07 times book-to-bill, then decline 2% a year. What would make this wrong: a large recompete loss, budget cuts to Department of War or civilian programs, or a sharp rise in refinancing costs. Note also that the tax refund from the R&D expensing change was still partly receivable at year-end, and we could not separate how much of it has already been collected.