Wednesday, September 24, 2003

Cold War To Hot Technology

WASHINGTON - For 25 years, tech contractor SRA International has done high-level problem solving for the U.S. government. One of its first gigs: advising the Department of Defense on how to keep its operations running in the buildup to and aftermath of a nuclear exchange between the Cold War powers.

"People talk about the danger of a dirty bomb," muses SRA Chief Executive Ernst Volgenau. "Can you imagine 1,000 Soviet nuclear warheads descending on the United States?"

Yes, SRA designs government computer networks and systems. And it would like to do more such work. But it also helps prepare government agencies for disaster and develops software and techniques for analyzing the effectiveness of civilian and defense programs. Example: In a recent engagement for the Centers for Medicare & Medicaid Services, SRA was hired to look for patterns in Medicare claims that might indicate fraud.

So far, this mix of business has served SRA well. Revenue, $450 million for the latest 12 months, has grown at a 15% annualized clip over the past five years. And given today's national security situation, analysts expect more of the same; the Thomson First Call consensus forecasts SRA's bottom line will expand at a rate of 21% (annualized) over the next thee to five years.

Yet even with that kind of projected growth, one might wonder whether SRA has sufficient bulk to compete, particularly as the giant defense contractors muscle into the field of government technology. Last week, Lockheed Martin announced a $1.8 billion bid for Titan, a San Diego-based technology-services outfit specializing in national security and defense.

Moreover, SRA has a reputation for being relatively selective about both the engagements it takes on and the acquisitions it makes. "They've had measured growth," says Cynthia Houlton, equity analyst with RBC Capital Markets. "They haven't gone out for large deal opportunities just to beef up the top line."

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