Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Will SAIC, Inc. (SAI) Stock Rise From Its Impending Split?

SAIC, Inc. (SAI)SAIC, Inc. (NYSE:SAI) has struggled in recent years, with SAIC, Inc. (NYSE:SAI) stock having posted sharp declines in 2011 and 2012 in response to adverse conditions among companies relying on the federal government for substantial portions of their business. But so far this year, SAIC has posted a fairly impressive rebound, due in part to the company’s plans to break up its business and create two separately traded companies with different business focuses.

SAIC, Inc. (NYSE:SAI) has earned a solid reputation in the cyber-security industry, benefiting from the rise in Internet- and network-based attacks on computer systems and other technology. But its strategic move to split itself in two would create a smaller government-services company and a larger technology-based company to be called Leidos. Let’s take a closer look at SAIC and what’s likely to result from its move.

What SAIC does and how it’s doing
The rise in technology has created huge gains in productivity in both the public and private sectors, but along with those opportunities has come the challenge of dealing with the increasing vulnerability that technology has brought. With cyber-attacks having risen sharply in recent years and allegations of state-sponsored hacker groups in North Korea and China, the value of protection against those attacks has greatly enhanced the visibility of SAIC, Inc. (NYSE:SAI)’s cyber-security efforts.

But given how much business SAIC, Inc. (NYSE:SAI) does with the government, recent budget cuts under sequestration have hampered the company’s growth. In its most recent quarter, SAIC suffered a 31% decline in earnings from the previous year, missing expectations on both sales and net income. Automatic spending cuts only added to federal-budget pressures that companies throughout the sector have had to endure for years now.

Breaking up is smart to do
Arguably the biggest benefits of the split will be to accentuate the diverse services that SAIC currently provides. Cyber-security is all the rage and is clearly a growth industry, but it’s far from the only thing that the company does. SAIC, Inc. (NYSE:SAI) and Raytheon Company (NYSE:RTN) are working on drones that could help the U.S. detect enemy submarines much more cost-effectively than by using manned anti-submarine detection methods. Moreover, the company recently showed off its AD16 data link technology, which helps command posts gather vital information to help guide strategic decisions on the battlefield.

Meanwhile, giving its cyber-security and information technology segment a chance to become independent should help SAIC compete better against the many rivals that are looking to stake their claim to the rapidly growing industry. General Electric Company (NYSE:GE), for instance, has a substantial presence in providing military-grade networking equipment and protective measures including customized firewalls, encryption software, and other products to help secure military communications from hackers and other outside threats. General Electric Company (NYSE:GE) has extended and adapted those efforts to commercial applications through its General Electric Company (NYSE:GE) Information Security Technology Center as the need has become greater throughout the private sector, and having SAIC streamlined to hold its own against GE and other rivals should help bolster both SAIC, Inc. (NYSE:SAI) stock and that of its Leidos spinoff in the future.

What’s next for SAIC?
So far, SAIC has been moving slowly but steadily in its breakup moves, agreeing last month to sell its headquarters and hiring an executive to lead its national-security division within Leidos. The company is dealing with other costs from the restructuring, including professional fees and further costs of reducing its real-estate holdings and moving some of its employees.

For SAIC stock, the impact of the split will depend greatly on decisions that investors make after the two companies trade independently. If budget concerns continue, then the government-facing half of the company might well underperform the broader-based business, rewarding those who decide to sell off their SAIC, Inc. (NYSE:SAI) stock and hang onto shares of Leidos that they obtain in the split.

The article Will SAIC Stock Rise From Its Impending Split? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of General Electric and Raytheon.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.