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Bear of the Day: DXC Technology Company (DXC)

Benjamin Rains

Shares of DXC Technology Company (DXC) have tumbled 65% over the last 12 months. Looking ahead, the firm that was formed from the merger of Hewlett Packard Enterprise’s (HPE) Enterprise Services unit and Computer Sciences Corporation, doesn’t appear as though it is likely to inspire enough investor confidence to help support a comeback.

Overview

DXC Technology was officially formed in April 2017 and currently has a market cap of $8.6 billion. The company, which operates in our Computers - IT Services industry, tries to help clients transform their operations in the digital age. DXC holds strategic partnership with some impressive names, including Amazon Web Services (AMZN), Google Cloud (GOOGL), Microsoft (MSFT), ServiceNow (NOW), AT&T (T), and many more. Overall, the Tysons, Virginia-based firm has roughly 6,000 private and public-sector clients around the world.

The firm did top both our quarterly earnings and revenue estimates in early August. Unfortunately, the end-to-end IT services firm’s Q1 fiscal 2020 sales and earnings slipped from the year-ago period. DXC’s brutal quarter saw its shares fall from $51.32 per share to $35.68 in one day. Wall Street and investors also voiced their displeasure with the company recently, after it announced last Wednesday that Mike Lawrie would retire as President and CEO.

 

 

 

 

Outlook & Earnings Trends

Moving on, DXC’s Q2 2020 revenue is projected to slip 1.8% from the year-ago period to hit $4.92 billion, based on our current Zacks Consensus Estimates. On the positive side, this would mark an improvement against Q1 2020’s 7.5% downturn.

The company’s full-year fiscal 2020 revenue figure is expected to slip 2.1% to come in at $20.31 billion. Peeking further ahead, DXC’s fiscal 2021 sales are projected to pop 0.61% above our current-year estimate, which would still come in below 2019’s figure.

At the bottom end of the income statement, the company’s adjusted Q2 earnings are projected to plummet approximately 26% to touch $1.50 a share. Unlike DXC’s second-quarter top-line estimate, this would represent a much worse showing than Q1’s roughly 10% bottom-line decline.

The company’s Q3 EPS figure is then projected to fall 13.3%, to help drag full-year fiscal 2020’s earnings down by 12.5%. Luckily, DXC’s 2021 earnings are projected to surge 17.5% above our 2020 estimate. Despite next year’s positivity, the company’s overall earnings estimate revision picture has turned far worse recently.

 

 

 

 

Bottom Line

DXC is currently a Zacks Rank #5 (Strong Sell), based, in large part, on its recent negative earnings estimate revision activity. The company also holds an “F” grade for Growth in our Style Scores system. On the positive side, the company does pay an annualized dividend of $0.84 share at the moment. Nonetheless, investors should probably look elsewhere.

Those still interested in the broader Computers – IT Services market might want to consider CDW Corporation (CDW) or EPAM Systems, Inc. (EPAM), which are both Zacks Rank #2 (Buy) stocks right now.

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