We came across a bullish thesis on CACI International (CACI) on ValueInvestorsClub by BenHillGriffin. In this article we will summarize the bulls’ thesis on CACI. CACI International shares were trading at $379 when this thesis was published, vs. today’s price of less than $454.
An IT technician in an open office with stacks of servers in the background.
CACI International (CACI), a leading player in the defense and intelligence sector, demonstrates significant growth potential under the leadership of CEO John Mengucci. Valued at approximately 20x free cash flow (FCF) and price-to-earnings (P/E), CACI stands to benefit from several secular trends, such as rising global defense budgets and increased government outsourcing. The company has successfully transitioned its focus from services to technology, enhancing margins and business predictability. With a strong balance sheet, robust FCF generation, and accelerating growth, CACI is viewed as an undervalued defensive “compounder” by the bulls.
Founded in 1962, CACI boasts a market cap of $10 billion and an enterprise value of $11.5 billion, with $7.5 billion in revenue against a $250 billion addressable market and over $1.5 trillion in the defense budget. Since Mengucci took the helm in 2012, the company has shifted towards technology, increasing its backlog by ~60% since 2019, improving margins, and reducing shares outstanding by ~12%. CACI’s technology-driven approach allows it to secure higher-margin contracts through innovative solutions, contrasting with competitors who focus on traditional staffing services. Notable projects include processing signals for the Navy, developing software-driven intelligence for the Army, and securing the Air Force’s IT network.
Today, 55% of CACI’s revenue derives from technology, with the rest from services, a significant shift from a previous 80-20 services-technology split. Key trends such as cyberwarfare, intelligence, and electronic signals’ growing importance align with CACI’s capabilities. The company’s acquisitions in photonics have strengthened its position in the space domain, with major investments set to yield returns starting in FY’25.
CACI’s expanding backlog and longer contract durations enhance revenue visibility and reduce annual business loss. Organic revenue growth has accelerated, and the company has raised its guidance three times in FY’24. Despite trading at a discount to peers like Booz Allen Hamilton (BAH) and the S&P 500, CACI presents an attractive valuation. Projections suggest FCF per share could grow to $45+ by FY’28, offering a base case mid-teens internal rate of return (IRR) and a bull case 30% IRR. Strong management, exemplified by Mengucci’s focus on FCF per share, and the potential for significant capital returns further support CACI’s compelling investment narrative.
CACI is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 31 hedge fund portfolios held CACI at the end of the first quarter which was 42 in the previous quarter. While we acknowledge the potential of CACI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as CACI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
