Stanley: Government IT specialists

When you want to be a successful government consultant, you have to understand the government's ways. There is an information technology outfit in Arlington, Virginia that has the inside track that way. It was founded by an admiral and works for the Departments of Defense, Transportation, Homeland Security, Justice and State.

Stanley Inc. (NYSE: SXE) provides information technology services and solutions to U.S. defense and federal civilian government agencies. The firm offers its customers systems integration solutions and expertise in support of their needs at any stage of program, product development or business lifecycle. Services involve systems engineering, enterprise integration, operational logistics, business process outsourcing and advanced engineering. The company employs more than 2,700 and operates at over 100 locations worldwide.

Stanley pleased investors last week, when it announced fiscal Q4 EPS of 20 cents and revenues of $116.6 million. Analysts had been expecting 18 cents and $102.55 million. Management also guided Q1 EPS to 19-21 cents (18 cent consensus), Q1 revenues to $120-$125 million ($107.19M consensus), FY08 EPS to 79-85 cents (83 cent consensus) and FY08 revenues to $480-$500 million ($450.50M consensus). Wachovia and Stifel Nicolaus subsequently declared the stock a "buy" and the later boosted its price target to $22.

SXE shares popped on the news and then moved into the initial stages of a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with eight "strong buys" and one "buy". Analysts see a 21 percent growth rate, through the next year. The SXE Price to Sales ratio (0.98), Price to Book ratio (2.76), Price to Free Cash Flow ratio (25.20), Sales Growth rate (38.48%) and EPS Growth rate (0.20 vs 0.00 yr/yr) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 65% of the outstanding shares. Since going public last October, the stock has traded between $13.41 and $18.24. A stop-loss of $14.85 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.