SAIC shares fall on news of contract loss

NEW YORK -- Shares of SAIC Inc. fell Monday after the Department of Defense announced it was giving a different contractor a key contract that SAIC used to hold.

THE SPARK: The Pentagon said Friday that its Defense Information Systems Agency awarded an open-ended contract initially worth $1.91 billion to a unit of Lockheed Martin Corp.

The contract includes a base period of three years and two two-year options but covers an indefinite quantity of services over an indefinite period, the department said.

THE BIG PICTURE: The contract will allow Lockheed Martin to run daily operations of the Department of Defense's worldwide network and related telecommunications.

When SAIC held the contract, it generated about $400 million in revenue per year for the McLean, Va.-based company, or about 3.6 percent of its annual total, said Stifel Nicolaus analyst William Loomis.

Loomis put the value of the new contract, if all options are exercised, at $4.6 billion. He expects SAIC to protest the shift to Lockheed Martin, even though that's unlikely to be successful. He said an appeal might result in SAIC keeping the contract for another quarter, or even through fiscal 2013.

An SAIC spokeswoman did not immediately return a call and an email seeking comment.

THE ANALYSIS: "We are maintaining our `hold' rating on SAIC given an increasingly difficult federal market, and the loss of SAI's largest contract furthers these headwinds for SAIC," Loomis wrote in a note to investors.

Loomis didn't change his fiscal 2013 earnings prediction but cut his fiscal 2014 profit forecast by 12 cents to $1.26 per share to reflect the loss of the contract. On average, analysts had been expecting an adjusted a fiscal 2014 profit of $1.33 per share, according to FactSet.

THE SHARES: Down 47 cents, or 3.8 percent, to $11.77 by midday, after dropping as low as $11.60 early Monday. Over the past 52 weeks, the company's shares have traded between $10.31 and $17.03.