Wells Fargo Upgrades Three To Outperform In Government Services

Wells Fargo analyst Ed Caso upgraded CACI (CACI), Leidos (LDOS) and SAIC (SAIC) to Outperform from Market Perform while reiterating Outperform ratings on Booz Allen (BAH) and favorite idea CSRA (CSRA).

The analyst sees an improving fundamental backdrop for funding levels and pricing amid a “rising global threat environment.” Further, he believes the expected resolution in December of the 2018 federal government appropriations should drive national security funding above the current caps set under the Budget Control Act of 2011, while doing “limited damage” to civilian agency budgets.

The sector can also benefit meaningfully from any reduction in the U.S. corporate tax rate, Caso tells investors in a research note. He raised his price target for CACI to $158 from $132, for Leidos to $69 from $58 and for SAIC to $80 from $70.