SAIC INC (SAI)

While I generally do not like IPOs, I did open a small position of SAI this afternoon. (I probably bought it high, as I was out all morning on personal business). This is a large cap, defense procurement play with long history, proven track record, strong sales growth (31% in the past 10 years), strong employees ownership (85%), strong backlog, high level of visibility, and reasonable valuation, in my view. The company is expecting 15% revenue growth for the next three years, both organically and by acquisition. This, combined with a modest margin improvement, could lead to 20%-30% earning growth. The company's EPS in FY06 (proforma) was $1.92 per share and I expect it to generate a EPS for FY07 north of 2.0. With a modest 20X multiple, this could be a $40 stock in the next year or so. I understand there was a lot of pent up demand for this name, however, the pop up is rather modest, in my view. I am happy to pick some anywhere below $20.

Position: Long SAI