Computer Sciences (CSC) Mixed on Top, Bottom Lines

Computer Sciences Corporation (CSC) reported first quarter 2010 EPS of $0.91, exceeding the Zacks Consensus Estimate of $0.90, while revenue of $3.94 billion was below the Zacks Consensus of $4.07 billion.

Revenue

The company’s first quarter 2011 revenue was up 1.1% compared to the year-ago quarter, driven by strength across all segments except Business Solutions & Services.

North American Public Sector (NPS) revenue was $1.55 billion, up 2.2% compared to the year-ago quarter. Managed Services Sector (MSS) revenue was $1.60 billion, up 2.2% from the year-ago quarter. Business Solutions and Services (BSS) revenue was $0.82 billion, down 2.0% compared to the year-ago quarter.

New Business

The company won $3.2 billion worth of new business awards in the first quarter. Of the three lines of business, NPS accounted for $1.2 billion of new business wins, BSS $0.8 billion and MSS $1.2 billion.

Operating Results

CSC recorded an operating margin of 7.13%, up 32 basis points from 6.81% reported in the year-ago quarter. The margin was negatively impacted by the increase in the cost of services, offset to a considerable extent by the increase in revenue.

Computer Sciences reported net income attributable to the company’s shareholders of $143.0 million, which was down 9.2% from $131.0 million reported in the year-ago quarter. The first quarter EPS was $0.91, up from $0.85 reported in the year-ago quarter.

Balance Sheet

CSC used $60.0 million of operating cash flow, which improved by $237.0 million from the previous year, while the free cash flow was a negative of $318.0 million. The company exited the quarter with $2.43 billion in cash and cash equivalents. CSC has a total debt balance of $3.73 billion and its debt-to-capitalization ratio declined by 30 basis points in the last quarter to 36.8%.

Guidance

The company provided its guidance for fiscal year 2011. Accordingly, Computer Sciences expects new business awards in excess of $18 billion, revenue in the range of $16.8 to $17.2 billion, operating margin of between 9% and 9.25% and EPS in the range of $5.30 – $5.40. Free cash flow is expected to be equal to or greater than 90% of net income.

Our Recommendation

The company has a steady flow of new business, especially in the government vertical and is financially sound. On the other hand, we are a bit concerned about the intense competition in the IT and cloud computing space from both big and small players such as Accenture (ACN) and Hewlett-Packard (HPQ).

We currently have a long-term Neutral recommendation on the stock, and the Zacks #3 Rank allotted to the shares indicates that we do not expect significant variation in prices over the next 1-3 months.

COMP SCIENCE (CSC): Free Stock Analysis Report

About Zacks Investment Research 1767 Articles

Zacks Investment Research is one of the most highly regarded firms in the investment industry. In 1978 Zacks originated the concept of utilizing earnings estimates revisions to make profitable investment decisions. Zacks offers multiple investment products and services to help investors achieve superior returns.

Visit: Zacks.com

Be the first to comment

Leave a Reply

Your email address will not be published.


*