CACI International Inc (NYSE:CACI) Passes Key Quality Investing Screen

For investors aiming to assemble a portfolio of lasting, high-standard businesses, the quality investing method provides a structured system. This approach concentrates on finding firms with durable competitive strengths, reliable earnings, sound financial condition, and the capacity to produce high returns on capital across extended periods. Instead of pursuing temporary fads or large price reductions, quality investors search for organizations that can increase value through various economic conditions. One organized method to find these prospects is through filters like the "Caviar Cruise," which uses numerical measures for sales increase, earnings growth, return on invested capital (ROIC), and financial soundness.

A recent run of this filter highlighted CACI International Inc -CL A (NYSE:CACI), a supplier of knowledge and technology to U.S. national security and government modernization clients. The firm's position as a government services contractor implies a model with repeat income and significant obstacles to competition, which are non-numerational traits commonly desired by quality investors. A more detailed look at the numerical standards shows why CACI was identified by the filter.

Aligning with the Main Quality Standards

The Caviar Cruise filter uses a number of important measures to evaluate a company's past results and financial soundness. CACI's shown numbers indicate agreement with these central ideas:

• Earnings Growth Surpassing Sales: A primary idea of quality investing is advancing profitability, which signals control over pricing and effective operations. The filter demands a 5-year EBIT (Earnings Before Interest and Taxes) growth rate over 5%, and preferably, for that growth to be higher than sales growth. CACI's EBIT has increased at a compound yearly rate of 11.2% over the last five years. While the 5-year sales growth number was not shown in the given data, the company's recent 12.6% yearly sales increase and solid EBIT growth imply it is turning revenue into earnings successfully.

• High Return on Capital: Possibly the most important measure for quality investors is Return on Invested Capital (ROIC), which calculates how well a company produces earnings from its capital foundation. The filter searches for an ROIC (leaving out cash, goodwill, and intangibles) over 15%. CACI performs well here, with a number of 49.9%. This very high return implies the business needs fairly small additional capital to expand its earnings, a sign of an operation with light asset needs and high standards.

• Sound Financial Condition and Cash Generation: Quality firms are not weighed down by excessive debt and produce high-standard earnings. The filter selects for a Debt-to-Free Cash Flow number under 5, meaning the company could in theory eliminate all debt within five years using its present cash generation. CACI's number of 4.54 falls within this acceptable zone. Also, its 5-year average Profit Quality—which calculates how much net income becomes free cash flow—is a solid 116.1%. A number above 100% means the company is producing more cash than its reported earnings indicate, frequently a signal of careful accounting and good management of working capital.

Overall Financial Condition and Price Assessment

A wider inspection of CACI's financial picture, as described in its detailed fundamental analysis report, gives more background. The report gives CACI a neutral total fundamental score of 5 out of 10, stating that while nothing extraordinary is occurring, the company displays reasonable growth and is not priced too high.

Important points from the report consist of:

• Profitability & Growth: The company gets good scores for steady earnings, positive cash generation, and solid recent growth in both earnings per share and sales. Its profit and operating margins are higher than most others in its field.
• Financial Condition: The ability to pay debts is seen as sufficient, with an Altman-Z score showing no short-term risk of failure. The report verifies the acceptable debt level, matching the filter's Debt/FCF result.
• Price Assessment: The price evaluation is not one-sided. While CACI's Price-to-Earnings number is similar to its industry, it seems high on a Price/Forward Earnings basis compared to similar firms but low relative to the wider S&P 500. This points to a typical balance in quality investing: high-standard businesses seldom sell for very low prices, needing investors to judge if the present cost is reasonable for the lasting competitive strengths available.

Is CACI a Quality Investment Prospect?

According to the numerical filters of the Caviar Cruise screen, CACI International makes a strong argument for more examination by investors focused on quality. It shows the key traits the method looks for: outstanding returns on capital, good earnings growth, solid cash conversion, and an acceptable debt level. These measures indicate a business with an effective model and a possibly lasting competitive place within the government services industry.

However, the filter is only a first step. The neutral total fundamental score implies topics for more careful investigation, especially regarding the continuation of its high ROIC and its future growth path in a competitive federal contracting environment. Quality investing also requires evaluating less numerical aspects like management skill, competitive barriers, and strength during economic declines.

Interested in examining other firms that meet the Caviar Cruise quality filter? You can see and adjust the filter yourself here.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.