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Stellar Results

Guidance is also strong for this holding, and it announces a share buyback program.
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Shares of DynCorp (DCP) are trading 6% higher in the premarket at $18.00 after the company reported earnings Wednesday evening. We are taking no action in this Alert.

DynCorp posted fiscal fourth-quarter earnings of 33 cents a share and revenue of $552 million, which was much higher than the consensus estimate calling for earnings of 28 cents a share and revenue of $543 million. Also, operating margins for the quarter jumped to 7.8% from 6.9%.

Looking ahead to fiscal year 2008, management said it expects to earn $1.00 to $1.10 per share on revenue of $2.35 billion. This is higher than the consensus earnings estimate of $1.00 and in the midrange of analysts' revenue expectations of $2.1 billion to $2.8 billion, which we mentioned in our preview yesterday. Also, the company announced a $10 million share buyback.

Based on the strong outlook, investment firm CIBC upgraded DynCorp to sector outperform from sector performer this morning.

We believe the revenue guidance is very conservative given the likelihood that DynCorp will retain the $4.6 billion Army linguistics contract that has been under protest. Also, it's possible the company could get a piece of a $150 billion Army contract, known as LOGCAP IV, to provide combat support services. Awards for that contract are expected by the end of summer. DynCorp is one of five competitors bidding, which should give it a fair chance to get at least a small part of the contract.

Overall, the earnings report was very solid. The conference call is taking place right now, and we will update you if there are any new developments.

Frank Curzio is a research associate at TheStreet.com.

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