Zacks Research is out today with a big thumbs-up for a stock I’ve been watching for a while – NCI, Inc.

NCI is one of the most prominent supplier of information technology systems and services to the U.S. Government. It’s been especially adept at sneaking in and snagging contracts from much bigger suppliers like IBM and Hewlett-Packard. The company’s financial health seems to be in very good shape, reporting 1st quarter earnings of 27 cents per share, beating analyst expectations. Earnings were up 37% in 2007. Should be a no-brainer, right?

Not so much. One problem with NCI is that the stock is one of the lower-volume stocks on NASDAQ. On average, only 26,000 shares change each day, which is a very low number for a highly-regarded technology stock with fat contracts with Uncle Sam. A big issue is that the chairman and CEO of NCI, Charles Narang, owns about half of the company’s stock, and big institutional investment firms own 44%. So that doesn’t leave a lot of room for the little guy who wants in on NCI.

On one hand, owning a stock that the chief shareholders deem too valuable to sell is a big positive. After all, we’re always looking for signs of in-house buy-and-sell trends. When you see a CEO selling, it’s time to get out. That’s not the case with NCI. But the stock is so difficult to buy that you have to wonder what’s really going on.

Right now, analysts peg NCI’s stock as being undervalued by as much as 15%. Out of 10 analysts tracking the company, seven rate the stock as either a buy or a hold. In the last year, the company’s stock price has risen from a low of $13.30 to $24.70 at the end of trading today. And there is still room to grow, analysts say. Touting NCI in a March 18 report, Stifel Nicolaus gave NIC a target price of $27, based on a multiple of 20 times estimated 2009 EPS of $1.37. Already the word on Wall Street is that the stock should go even higher, based on a bevy of new deals the firm has inked with Uncle Sam, mostly with the Department of Defense, and mostly with deals measured under $100 million or less – a level that the big IT firms scoff at. Not me – if you can seal the deal on five or 10 such government projects, then the money really starts adding up. What’s more, very few of the company’s contracts with the government are up for rebidding in 2008, thus minimizing a lot of potential downside risk.

I don’t see any headwinds until 2009, when NCI has a $9 billion contract with the DOD up for rebidding. But from what I’m seeing, the company is doing a good job and should have the inside track.

So, if you can get in below $27 per share and tolerate a company where 90% of the stock is out of play, NCI could be a nice play for you, too.

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